Page 36 - Q&A 2019/2020

A director, shareholder and employee?
What rules apply to each position?

Dr. Damian Viviers
April 2019

“I’m a director in a local design company. I’m also a shareholder in the
company and have an employment contract. Lately, I’ve been at loggerheads
with my co-directors about the direction of the business. I just feel we want
different things. I’ve now decided to rather head out on my own and start my
own design company. But I want to make sure I can do this?” Commercial

Firstly, it must be understood that although the positions of director, shareholder
and employee can all reside in one person, these positions are not all the same
and have different legal responsibilities potentially linked to them.

A director of a company is entrusted by the shareholders of the company with
the responsibility for the functioning and management of the company. The
Companies Act 71 of 2008 (“Companies Act”) extends to directors the authority
to perform all the functions and exercise all the powers of the company. The
Companies Act also sets out the minimum standard of conduct required by
directors and provides for liability where a director falls short of this standard.

A shareholder of a company is the holder of shares issued by the company and
ultimate control of a company rests with the shareholders, as the owners of the
company. While the directors of a company may direct and manage the affairs
of the company, the shareholders are empowered in terms of the Companies
Act to participate in the appointment and removal of directors from office.

An employee has an employment relationship with the company and is subject
to a contract of employment with the company which sets out the nature and
scope of the employee’s relationship with the business during and possibly
even after employment. Executive and senior employees, such as directors, may
also be employees of a company and have contracts of employment with the
company.

A director occupies a position of trust within the company and must act as
caretakers of their companies, manage these entities and act as their agents.
Once a person accepts appointment as a director, he or she becomes a
fiduciary (being a person who holds a legal or ethical relationship of trust) in
relation to the company and is obliged to display the utmost good faith towards
the company in his or her dealings on behalf of the company.
Directors and senior employees of a company may not compete with the
business of the company, while such a person is a director or employee of the
business. This position can change when such a person leaves their position as
employee and director.

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