Management of companies under South African law

Section 66(1) of South Africa’s Companies Act, No. 71 of 2008, provides that the business and affairs of a company must be managed by and/or under the direction of its board of directors. The board has the authority to exercise all of the powers and perform any of the functions of the company, except to the extent that the Companies Act or the memorandum of incorporation (MOI) of the company provides otherwise.

New approach

The power of the board to manage the business and affairs of the company is noteworthy in two respects. Firstly, the act now confers original and not delegated powers to the board to manage the business and affairs of the company. This approach is fundamentally different from that of the Companies Act, No. 61 of 1973, in terms of which board members were mere functionaries of the company with delegated powers from the shareholders. Secondly, the ultimate power in the company now vests with the board and not with the shareholders.

As a result of the original and ultimate nature of the board’s powers, the 2008 act has codified certain common law duties of directors and now bestows a statutory duty on directors to ensure that they always exercise the powers and perform the functions of director: (a) in good faith and for a proper purpose; (b) in the best interest of the company; and (c) with the degree of care, skill and diligence that may reasonably be expected from a director when carrying out his or her specific functions in respect of the company.

The shareholders do, however, have the authority to amend a company’s MOI to restrict or limit the power of the board.

Jackwell Feris is a senior associate at Webber Wentzel, one of the leading corporate law firms in Africa and the South African member of ALN, an established group of Africa’s 12 foremost law firms.