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SOUTH AFRICAN LAW AND DIRECTORS

The duties of company directors are governed by South African common law, in terms of
which directors are required to act in the utmost good faith and in the best interests of
their companies and to exercise care, skill and diligence.
The Companies Act (no.71 of 2008 ), as amended [hereinafter referred to as ‘the Act’
or ‘the Companies Act’], read together with the Regulations, codified a large portion of
the common law position relating to directors’ duties, and made a few notable additions
(which did not have the effect of altering the common law position significantly).
Section 76 sets out the standard of directors’ conduct, which has been expanded
upon further in the chapter titled ‘Duties and Responsibilities of Directors’. Another
main purpose of the Companies Act is to promote compliance with the Bill of Rights
as provided for in the Constitution in the application of company law in South Africa.
An entity (company or close corporation) has a duty to comply with the common law,
Companies Act and Regulations (as amended from time to time) – and directors have to
fulfill their duties accordingly, otherwise they could be held liable.
In addition, a director is required to ensure that the company complies with appropriate
industry or sector specific legislation, as well as all other applicable laws affecting
business in South Africa (some of which are listed in the chapter titled ‘Important Laws
Affecting Businesses in South Africa’).

CLOSE CORPORATIONS (CC’S)

A CC is a type of South African legal entity which was, in the past, usually chosen for
smaller businesses. It is governed by both the Close Corporations Act (no.60 of 1984),
and the Companies Act. The owners and managers of a CC are the members, holding
a membership interest in the CC. The same requirements for maintaining accurate
and complete accounting records, satisfying the financial reporting standards and
preparing annual financial statements (AFS) apply to CC’s as for companies. Since the
implementation of the Companies Act, no new CC’s may be registered, however the
Companies Act permitted existing CC’s (those incorporated before 2011) to continue
trading for an indefinite period. At some point in the future, however, the Act may be
amended to compel all CC’s to convert to one of the company forms provided for in
the Act.

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