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Three duties your company director must obey to avoid 10 years in jail

by , 12 August 2013
The Companies Act contains a number of duties your company director must follow. Read on to find out what these duties are so you can ensure your director adheres to them to avoid R1 million in fines or 10 years in jail.

Your company director could find herself behind bars if she doesn't adhere to her duties set out in the Companies Act.

That's right. Failure to comply means your director could get a fine of up to R1 million or get thrown in jail for 10 years.

Is your director aware of her three duties?

Director duty #1: A director must act in good faith and for proper purpose, says the Practical Accountancy Loose Leaf.

Your director mustn't cheat your company or enter into a transaction with a hidden agenda. She must always act in your company's best interests.

Director duty#2: A director must display independent judgement in decision-making.

A company appoints someone as a director because she has a skill set to benefit the company. So ensure your director uses her own skills and judgement to make decisions. And that other people don't influence her decisions or dictate how she should act or vote.

Director duty#3: Your company director must communicate any relevant information to the board as soon as possible. Unless:

  • She thinks the information is irrelevant to the company. For example, if a director knows a branch of the company in another part of the country is experiencing bad weather and the weather is completely irrelevant to the company's operations, he's really not expected to disclose this information to the board.
  • The information has already been published in the media.
  • The other directors already know this information.
  • She's legally forbidden from disclosing the information. For example, your director serves on two boards and she has a contract which states she won't disclose information about the one company to the other. This section won't force her to do so either.

It's that simple. Ensure your director adheres to these duties to avoid a hefty fine or jail time.

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