Entri AdminEntrihub chats to Ashley Curran, founder of Curran Attorneys. Ashley discusses the Companies Act.
Question 1: What is the Companies Act and who needs to comply with it?
Ashley: The companies act underwent a number of changes back in 2008. Since 2008 our new companies that came into effect and it really is applicable to all ptys that register in South Africa. Whether you're a small startup company or whether you're a listed JSC company.
Question 2: What are the key elements of the Companies Act that SME’s have to be aware of?
Nici: Firstly, there'd be a lot of talk about CC's. A lot of people heard about closed corporations. It's very important to note that you cannot register closed corporation anymore. They were done away with in terms of the new companies act. The second thing is a lot of people were very wary about or entrepreneurs were worried about PTY's as they believed that your financials had to be audited. That requirement has also now been done away with making the PTY structure a lot more user friendly to your startup entrepreneurs. Then thirdly, vitally important is there's been a lot of changes regarding directors. Specifically the personal liability associated with directors. Your directors are your decision makers in a company. They will make decisions on behalf of your shareholders and it's very important that they need to make those decisions in the best interests of a company and a good fee. The company's act really recorded what those fiduciary duties are and the consequences if directors don't comply with those. The consequences are that directors can now be held personally liable for any losses incurred by a company whereas prior to 2008 a director typically wasn't held liable for any personal you know losses associated with his conduct. That's really been one of the most significant changes which entrepreneurs need to be aware of because typically with your startup companies your shareholders are your directors. They generally fill both seats and they need to make sure that they making decisions in the best interest of the company. It goes a step further that they now need to make sure that they're not trading recklessly. That means is there's a solvency and a solvency requirement that's been introduced in the companies act where they need to not be acting in a way that will prejudice creditors. If they don't comply with that solvency test they will be deemed to be reckless trading recklessly and then it opens them up for ability.
Question 3: When a fairly hands-off business owner appoints a manager for her business, is that manager subject to director’s liability?
Nici: Yes, if he's appointed as a managing director then he will he will be liable in terms of the provisions of the companies act.