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The role of a Shareholder in a Company – who is the boss?

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Shareholders are the owners of shares in a company and play an important role in its financing and its operations and governance.  However, even if a shareholder owns all the shares in the company, they are not the primary decision-makers.

The Companies Act (“the Act”) states that “the business and affairs of the company must be managed by its directors”, who are appointed by the shareholders.  The appointment of the directors is therefore one of the most important roles of a shareholder, as it is a means to protect his interests in the company.

When considering the role of a shareholder in the appointment and removal of a director, it becomes evident that a shareholder has an essential and pivotal role to play in the company and has the power to influence the success of a company with these appointments.

In the instances that there is a director who is no longer acting in the best interest of the company, the shareholder has the opportunity to influence the future of the company. One of the three ways in which a director can be removed from his office, is by means of an ordinary resolution passed by the shareholders.

SHAREHOLDER INVOLVEMENT

In certain instances a shareholder might want to be involved in the company’s operations and this is done through its Memorandum of Incorporation (“the MOI”).  The MOI establishes the balance of power between the shareholders and directors of the company and a shareholder should be involved in all changes proposed to the MOI.

Shareholder rights are exercised at shareholder meetings, held when directors are required (either by the Act or the MOI) to refer a matter to shareholders for a decision.  The types of decisions where shareholder approval is required are important matters specially reserved for shareholder level decision-making, i.e. the sale of the business or the company, its name change, winding up the company; among others.  Alternatively, a shareholder can, under certain circumstances, request that a meeting be called.

Most companies have only one class of shares, ordinary shares, but it is increasingly common for even very small private companies to have different share classes. So a shareholder may own shares in different ‘classes’ of shares in the company – each with their own rights attached and this often becomes tricky, especially if you are a minority shareholder and unsure of your rights.

Please contact Nicci du Plessis on 083 440 8979 or nicci@duplessiscurran.co.za for more information on your role as a shareholder.


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Removing a Director in a Company

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What happens when the relationship with a Director sours?  How do you remove a Director from a Company?

As the appointment of the Director carries such weight in terms of their rights and responsibilities to the Company, removing a Director has to comply with the provisions of the Companies Act, 71 of 2008 (“the Act”), which sets out how and under what circumstances a Director can be removed.

Directors can be removed by:

  1. a) shareholders
  2. b) the Board of Directors if there are more than 2 Directors in the Company and a Director has been negligent or derelict in his duties; and
  3. c) by the provisions of the Company’s Memorandum of Incorporation.

Section 76 of the Act sets out the standard of conduct expected of a Director.  The standard extends beyond the common law duty of good faith and to act in the best interest of the Company. If a Director breaches his common law or statutory duties toward the Company, shareholders may act to have the Director removed from their office.

Section 71 of the Act sets out the manner in which Directors could be removed from their office:

  • a Director may be removed by an ordinary resolution;
  • adopted at a Shareholders meeting;
  • provided that the Director has been given notice of the meeting and the proposed resolution (stating the            reasons for the removal); and
  • has been given a reasonable opportunity to make a presentation, in person or through a representative, to the meeting, before the resolution is put to a vote.
  • This provision may not be altered in the Company’s MOI.

The reasons for the removal of a Director become important in terms of the process prescribed for the removal.  The Director needs to be aware of the charges against him in order to be able to respond properly, with sufficient time, before the resolution is voted on, hence the requirement for adequate notice of the shareholders’ meeting enclosing the proposed resolution.

As Directors have certain responsibilities and duties toward the Company and its shareholders, a decision made by the majority of the shareholders to remove a Director from his office, is not subject to automatic review by a Court, except for instances where the shareholders or Directors have acted mala fide or fraudulently in removing a Director from the board.

If you are a Director or a shareholder of a Company and need advice on removing a Director, please call Nicci du Plessis on 083 440 8979 or nicci@duplessiscurran.co.za to assist.


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THE ROLE AND RESPONSIBILITY OF A DIRECTOR

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The role of a director is much more than just the glamorous title, and one that shouldn’t be taken lightly. The Companies Act 71 of 2008 (‘the Act’) sets out the role, responsibilities and liabilities of a director, all of which should be taken into account before binding yourself to this title.

The day to day management of a company is managed by the board of directors (“the board”). The board has the authority to exercise all powers and perform all functions of the company, subject to the provisions of the Act and the terms of the Memorandum of Incorporation (‘MOI’) of the Company.  The Act prescribes the manner in which directors are to be appointed, the process whereby a director is removed or disqualified from acting as a director, as well as the internal procedures, including board meetings, resolutions, remuneration and financial assistance and loans to directors, amongst others.

It is important to identify the scope of the role of a director within a company.  The Act defines the different types of directors as follows:

  • Directors appointed in terms of the MOI;
  • Ex officio director: someone appointed as a director as a result of holding some other office, title or designation;
  • Alternate director: a director who is appointed to serve, on occasion and when required, as a director of the board in substitution for a director of the company; and
  • Director elected by the shareholders of the company.

Fiduciary Duties:

Directors of a company have what is referred to as fiduciary duties toward the company. Fiduciary duties of directors are mandatory, prescriptive and unalterable, and apply to all companies.

These duties are prescribed by law in order to protect the company and its shareholders and are the standard set for the conduct of directors, which includes the following:

1.A duty to act in good faith and in the best interest of the Company. This entails the duty to exercise independent judgement and to act within the limits of their powers.

2.Duties must be exercised with a proper purpose. While the act does not define a proper purpose, it is accepted that a director must exercise their powers objectively for that purpose.

3.Directors must exercise independent judgement. This means that directors must attend to and consider the company and its business in an unbiased and objective manner. This duty is strongly linked to that of the duty of good faith.

4.Directors must act within their powers and should not exceed the limits of their authority. This duty speaks strongly to the types of contracts that directors may and may not enter into on behalf of the company. Restrictions may also be contained in the Company’s MOI.

There are a number of fiduciary duties ancillary to the above provisions including that directors should not put themselves in a position whereby their personal interests may conflict with their duties and responsibilities toward the company, may not take economic opportunities in his/her personal capacity as a result of his/her position as a director of the company, may not make a secret profit from the company, compete with it or misuse its confidential information.

Liability of Directors:

While there is a clear division between the role of a director in his capacity as such, and his personal capacity, directors are not entirely exempt from liability arising from their office. Section 77 of the Act read with the provisions of section 218, set out the liability of directors of a Company, and the consequences thereof.

A director may be held liable for breaches relating to a fiduciary duty, for any loss, damage or costs sustained by the company as a result of such breach, or for any breach by the director of any other duty as contemplated in the Act.

The consequences of not adhering to the common law duties of a director, as well as the provisions of the Act, could have far reaching and very serious consequences for a director, including being the subject of a civil action.

In conclusion, the role of a director is one that should not be taken on without first understanding and familiarizing yourself with the provisions of the Act, and understanding the nature of the duties and responsibilities owed to the company.

For more information on this or if you require specialised director training for your staff, please contact Nicci du Plessis on 083 440 8979 or nicci@duplessiscurran.co.za


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PRIVATE COMPANY vs PARTNERSHIP – HOW DO YOU DECIDE?

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Every business has its own unique identity, there’s no such thing as “one size fits all”. So it is essential to understand the different types of business entities available and which one is best suited to you. Sole Proprietorships, Partnerships, Private Companies or Non-profit Companies – how do you decide?

You need to assess critical factors such as the tax implications of each entity, the size of the business, its longevity, the objectives of the business and the annual cost of maintaining the entity. The more common business entities are Partnerships and Private Companies.

Partnerships

These have many benefits and low establishing costs with no incorporation requirements. Partners would ordinarily work in the business and be part of its daily management. The income and expenses, for tax purposes, are treated as being personal to each partner. This means there is potential to fall into a lower tax bracket than would normally have been applicable if the business was registered as a private company. A downside to this model is that liability in respect of the Partnership falls on the partners in their personal capacities, as they don’t enjoy the protection of the partnership being a separate legal entity.

It is very important to ensure that a carefully drafted Partnership Agreement is signed by all the partners, which will regulate the internal workings of the partnership, eg who contributes what, the distribution of profits, what happens on dissolution of the partnership and the financial consequences thereof. In the event that one of the partners decides to leave the partnership, or dies, the partnership automatically comes to an end, so it is essential that the appropriate provisions are in place to ensure that the surviving or remaining partners are protected.

A Private Company

On the other hand, private Companies have a number of incorporation hoops to jump through, before the business can operate and trade lawfully. A company must be registered with the Companies and Intellectual Property Commission (CIPC) before it can start trading, which of course comes at a cost. There are annual fees payable to CIPC to ensure that the company can operate lawfully. A Company will also be subject to the prescribed tax rate for companies, which is currently 28%. Tax is paid by the company and profits are distributed to shareholders in the form of dividends.

There are many advantages to registering your business as a company, including limited liability for the directors and greater opportunity for expansion. There is a clear distinction between the company as a legal entity, and its directors and shareholders. The existence of the company is therefore not dependent on the involvement or retention of the original incorporators, and does not need to be dissolved when a director or founding incorporator resigns or dies. The day-to-day management of the company is run by its board of Directors, who are nominated by the shareholders. Shareholders are the holders of the shares in the Company and can also be appointed as directors.

As with Partnerships, it is very important that care be taken with drafting a Shareholders Agreement, which is the personal agreement between the shareholders themselves and the company. Consideration needs to be given to what happens if a shareholder wants to sell his shares, the company’s dividend policy, voting rights attached to shares, how directors are appointed or removed and circumstances that might trigger a forced sale of shares.

It is always advisable to speak to your Attorney when you are considering starting a business – so take the next step and give Nicci du Plessis a call on 083 440 8979 to set up a consultation.


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THE IMPORTANCE OF POPI

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THE NEW PROTECTION OF PERSONAL INFORMATION ACT

What it means for you
The Protection of Personal Information Act (POPI) seeks to provide a legal and enforceable framework for the manner in which a person’s right to privacy is perceived and protected, to guard against unlawful collection, retention, dissemination and use of personal information by unscrupulous forces. POPI will affect most businesses, companies and individuals who currently collect and store any kind of personal data on their clients, employees and suppliers.

What does the Act require?
Officially, the Act applies to the processing of personal information by South African institutions to ensure that they conduct themselves responsibly with this information. It furthermore holds them accountable should they abuse or comprise this.

The act sets out certain specific conditions for the lawful processing of personal information:

Condition 1 – Accountability: the responsible party will be held responsible for the management and implementation of the prescribed conditions to be met and maintained, for the collection and processing of information.

Condition 2 – Process limitation: personal information must be processed in accordance with the Act, and in such a way as to maintain the person’s (whose information is being processed) right to privacy.

Condition 3 – purpose specification: the information being processed must have been collected for a specific purpose and the information should only be kept for as long as necessary in order to fulfil the purpose.

Condition 4 – Further processing limitation: any further processing of the information collected must be in line with the purpose.

Condition 5 – Quality of information: the responsible party must take reasonable steps to ensure that the personal information collected is complete, accurate, not misleading and updated when necessary.

Condition 6 – Openness: information may only be collected by someone who has given notice to or disclosed the requirements, purpose and reason for the collection of the information, to the person or entity whose information is being collected and processed.

Condition 7 – Security Safeguards: the responsible party must ensure that security measures are in place to protect the integrity and confidentiality of personal information collected.

Condition 8 – details of the data or information being collected must be made available to such person or entity that is the subject of that information. The subject may request that the information be destroyed once the reason for obtaining the information no longer exists.

What constitutes Personal Information? Amongst others, personal information includes:

a)one’s race, gender, sex, pregnancy, marital status, national, ethnic or social origin, colour, sexual orientation, age, physical or mental health, well-being, disability, religion, conscience, belief, culture, language;

b)Information relating to the education or the medical, financial, criminal or employment history of the person, any identifying number, symbol, email address, physical address, telephone number, location information, online identifier or other particular assignment to the person, the biometric information of a person;

c)the personal opinions, views or preferences of the person and correspondence sent by the person that is implicitly or explicitly of a private or confidential nature.

While the Act is not yet in full force, with only a few provisions being active, it is only a matter of time before it will be in force in its entirety. Responsible parties should start taking action in respect of the provisions of the Act, so as to ensure that the necessary revisions and policies can be made and put in place timeously.

Review your own POPI status by doing the following:

1. Do a POPI audit – consider how the Act will affect your business, and what areas of risk exist in your business regarding the collection and processing of personal information.
2. Appoint an Information Officer. This can be a part time position at the moment.
3. Draft a Privacy Policy.
4. Revise contracts with clients and suppliers where any personal information is required to be collected for the proper functioning of the business.
5. Make sure that you have sufficient security measures in place to protect personal information;
6. Report any data breaches to the Regulator and data subjects.
7. Consider whether the GDPR might be applicable to your business.
8. Revise your internal procedure for the processing of personal information.

If you need any assistance with understanding or implementing POPI in your business with a proper strategy and tailored agreement, please call Nicci du Plessis on +27 (0)83 440 8979 Email: nicci@duplessiscurran.co.za


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MATRIMONIAL REGIMES

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MATRIMONIAL REGIMES:

On the eve of the happiest day of your life, filled with last minute preparations for the big day, it is easy to forget about the legal consequences of your marriage.

It is however, essential that couples select the correct martial property regime which will go a long way in protecting one another financially and getting a marriage off to a sound start.

There are three different systems, namely:

Married in community of property

Each spouse joins their respective estates, which includes all assets and liabilities, and they are then regarded as one entity.

Upon death or divorce, the joint estate is valued and each spouse (or their estate) is entitled to an equal half share of the joint estate. Each spouse will also be equally liable should there be outstanding debts.

This option is no longer as popular as it once was due to a number of disadvantages such as:

  1. Today a number of spouses are self-employed, and this system does not protect the other spouse should the business’s creditors come after the assets of the joint estate.
  2. Should the marriage dissolve, each spouse will share equally in the joint estate irrespective of their actual contribution.
  3. In most instances a spouse will require the other’s consent should they wish to enter into certain contracts, i.e. Suretyships.

Married out of community of property WITHOUT accrual

For all intent and purposes, the estates of both spouses are kept entirely separate before, during and after the marriage. “What’s mine is mine and what’s yours is yours”.

The biggest disadvantage with this system is if one spouse is less financially independent it may lead to unfairness. For example a number of women (or men) support their spouse’s career advancement by running the household and offering support which cannot be measured in monetary terms. Upon divorce, they may end up walking away with nothing.

This system is typically popular amongst spouses who have been married previously, who are both financially independent or have acquired substantial assets prior to the marriage.

Married out of community of property WITH accrual

This system is by far the most popular amongst young couples today. It combines the protection of an out of community marriage with the notion of sharing and rewarding each spouse equally for their advancements throughout the duration of the marriage.

Each spouse’s estate is given a value at the commencement of the marriage. Upon death or divorce, each spouse’s estate is again valued. The difference between these two amounts represents the growth (or reduction) in each spouse’s estate during the marriage.

The difference between the two growths constitutes the ACCRUAL. The spouse with the smaller growth will have a claim against the other spouse for half this difference.

Take the following scenario as an example:

Peter starts the marriage with a commencement value of nil, as does Jane. After 3 years they decide to part ways.

Jane had a very successful business during the marriage and her estate is now valued at R 500 000. Peter stayed at home to cook and clean and his estate remained at nil.

Jane’s growth is R500 000 and Peter’s is nil. The difference between the two is R 500 000. This amount constitutes the accrual.

Upon their divorce, the court will award Peter R 250 000 and Jane will be left with R 250 000. EQUAL SHARES IN WHAT THEY ACCUMULATED TOGETHER DURING THE MARRIAGE.

Should a couple wish to get married out of community of property with or without accrual then they must sign an Antenuptial Contract (ANC) before their wedding day.

Should you require advice and/or assistance in preparing your ANC contact Ashley at Du Plessis & Curran Attorneys on (021) 671 9322 or ashley@duplessiscurran.co.za.


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GRANDPARENTS AND THEIR RIGHT TO SEE THEIR GRANDCHILDREN

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GRANDPARENTS AND THEIR RIGHT TO SEE THEIR GRANDCHILDREN:

It is sad when a loved one passes away, especially when they have young children. In these circumstances what happens to the parent of the deceased i.e. grandparents and their contact with their grandchildren? In an ideal world it shouldn’t affect them seeing their grandchildren, but in reality the situation may become somewhat complicated.

Such a complicated situation arose in a matter before the Eastern Cape High Court. In this matter the grandparent’s son had passed away and the mother of the child had remarried. The mother abruptly stopped all contact between the child and the grandparents alleging that the grandparents were unfairly burdening the child by telling him that his real father “was in the sky”.

When considering matters of this nature the Court takes the following factors into account:

  • Best interests of the child
  • Relationship between the person and child
  • Degree of commitment that person has shown towards the child
  • Extent to which that person has contributed to the maintenance and/or upbringing of the child
  • Any other factor which the court considers necessary

It is usually in the best interest of a child that they maintain a close relationship with his/her grandparents. Members of the extended family play an important part in a child’s social and psychological development.

The court ruled that contact between the child and grandparents had to be re-instated.

For further information in this regard, contact Ashley at Du Plessis & Curran Attorneys on (021) 671 9322 or ashley@duplessiscurran.co.za.


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3 REASONS TO SIGN A MARRIAGE CONTRACT

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3 REASONS TO SIGN A MARRIAGE CONTRACT:

Wedding season is in full swing. Are you getting married? Then remember to sign a marriage contract before the Big Day.

Married in community of property is the default marital system in South Africa unless couples sign an Antenuptial Contract whereby they choose to be married out of community of property.

Here are three reasons why you should sign a marriage contract (Antenuptial Contract) before the Big Day:

  1. Creditors won’t be able to lay their hands on your estate if your partner runs into financial difficulty. Particularly important if either you or your partner are self-employed;
  1. You may acquire assets freely without the assistance of your partner;
  1. You are not “joined at the hip” financially and you may freely enter into contracts without the assistance of your partner.

Contact us for advice and assistance with the customisation of your marriage contract.


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RIGHTS OF UNMARRIED FATHERS

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RIGHTS OF UNMARRIED FATHERS:

Back in the day, fathers of children born out of wedlock were given a rough deal when it came to guardianship, custody and access to their children.

The tide began to turn in 1998, after a highly publicized court case, and through an act of parliament Courts were given the power to grant guardianship, custody and access to unmarried fathers.

Things have progressed further with unmarried fathers having full parental rights and responsibilities in terms of the Children’s Act.

Certain requirements do have to be met before an unmarried father has those parental rights and responsibilities. Those requirements are that:

  1. The father must have lived with the mother at the time of the child’s birth; or
  2. Regardless of whether the father lives or lived with the mother; he consents to:
  • Being identified as the father of the child; and
  • Contributes to the child’s upbringing; and
  • Contributes towards the expenses of the child

What does “parental rights and responsibilities” mean?

In a nutshell it means that you have the right to care for, maintain contact with, act as guardian and contribute to the maintenance of your child.

As guardian of your child you are expected to maintain your child’s property, if any, and assist or represent them when they enter into contracts. In addition, both you and the child’s mother both have to consent to the following:

  1. Child’s marriage i.e. only if under the age of 18 years;
  2. Their adoption i.e. if the mother marries and her husband wishes to adopt;
  3. Their removal or departure from South Africa i.e. mother wants to emigrate;
  4. Child’s application for a passport;
  5. Selling any property owned by your child.

Check our new post on www.myfamilylawyer.wordpress.com regarding the rights of unmarried fathers.


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PURCHASING PROPERTY AS AN UNMARRIED COUPLE

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PURCHASING PROPERTY AS AN UNMARRIED COUPLE

Are you an unmarried couple looking to buy a house together? If yes, then it’s wise to get a property partnership agreement (specifically suited to your needs) drawn up. The agreement should clearly state:

  1. Who pays for what i.e. purchase price, bond instalments, rates and taxes etc.
  2. What happens if you part ways.
  3. Procedures for resolving conflicts i.e. what happens if one of you wants to sell and the other doesn’t.

Ultimately it limits the potential for disagreements between you and your partner and protects your valuable asset.

For further assistance contact Ashley at Du Plessis & Curran Attorneys on (021) 671 9322 or ashley@duplessiscurran.co.za.


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