Q&A: What Every director and shareholder need to know.

Q: Are Directors Personally Liable for Company Debts?

A: Directors are not personally liable for company debts due to the principle of limited liability, which treats the company as a separate legal entity. This means if a company cannot pay its debts, only the company’s assets are at risk, not the personal assets of the directors. However, there are notable exceptions:

1. Fraud or Misrepresentation: Directors can be held personally liable if they engage in fraudulent activities or knowingly provide false information. This includes situations where the company’s debts were incurred based on deceptive practices or misleading statements.
2. Breach of Fiduciary Duties: Directors have fiduciary duties to act in good faith and in the best interests of the company. If they breach these duties, such as by making decisions that harm the company or benefit themselves at the company’s expense, they may be personally liable for any resulting losses.
3. Companies Act Section 77: Under the Companies Act 71 of 2008, directors may be held liable for company debts if they participated in reckless trading, which includes carrying on business in a manner that was likely to cause substantial harm to creditors. Additionally, improper maintenance of the company’s financial records can lead to personal liability.
4. Tax Obligations: Directors can also be held personally liable for certain tax obligations. For instance, under the Tax Administration Act, if a director is found to be wilfully neglectful in ensuring the company’s compliance with VAT or PAYE obligations, they can be held responsible for unpaid taxes.

Directors must adhere to legal and ethical standards to avoid personal liability.

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Q: What is the Difference Between a Director and a Shareholder?

A: Directors are responsible for managing the day-to-day operations of a company, making strategic decisions, and overseeing the company’s activities. They are appointed to run the company according to its objectives and in compliance with legal obligations. Shareholders, on the other hand, are the owners of the company through their shares. They invest in the company and have the right to vote on major corporate decisions, such as electing directors and approving significant changes. The company must have at least one director and one shareholder to be registered.

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Q: How Do I Change Directors on CIPC?

A: To change directors on the CIPC (Companies and Intellectual Property Commission) register, follow these steps:

1. Ensure Annual Returns are Up to Date: Make sure that the company’s annual returns are current.
2. Log Onto CIPC’s Website: Access the CIPC website and log in to your account.
3. Submit Required Documents: Upload the necessary documents, including the Digital Lodgement form, certified IDs of new and outgoing directors, and the minutes and resolution for the change.
4. Consider Third-Party Assistance: For a smoother process, consider using a third-party service like The Tax Shop Polokwane West to manage the changes on your behalf.

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Q: Can a Shareholder and Director Be the Same Person?

A: Yes, a person can be both a shareholder and a director of a company. When someone holds both roles, they will receive a share certificate indicating their ownership in addition to their director duties.

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Q: How Many Directors Can One Company Have?

A: A company must have at least one director. For Pty (Ltd) companies, there is no upper limit on the number of directors, although this can vary for several types of companies and areas.

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Q: Can a Company Be a Shareholder?

A: Yes, a company can be a juristic shareholder in another company, meaning it can own shares in other entities. However, a company cannot hold shares. Additionally, a registered trust can also be a juristic shareholder.

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Q: What is the Difference Between Par Value and Non-Par Value Shares?

A: Par value shares have a nominal value assigned per share, which is the minimum price at which shares can be issued. Non-par value shares do not have a nominal value; instead, their value is determined by the market or the company’s financial status. The Companies Act of 2011 introduced non-par value shares for new company registrations to simplify share valuation.

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Q: How Do I Transfer Shares Between Shareholders?

A: Transferring shares involves the following steps:

1. Issue a New Share Certificate: Provide a new share certificate to the receiving shareholder.
2. Cancel the Old Certificate: The old certificate held by the transferring shareholder must be cancelled.
3. Consider Third-Party Management: To ensure accuracy and compliance, consider using a third-party service to manage the share transfer process.

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Q: What is a Share Register?

A: A share register is a record that tracks all share transactions within a company. It includes details of issued and cancelled share certificates and helps in maintaining an up-to-date list of current shareholders. The CIPC does not maintain this record, so it is essential for the company to keep it accurately.

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Q: What is the Difference Between Authorised Shares and Issued Shares?

A: Authorized shares are the maximum number of shares a company is permitted to issue as per its Memorandum of Incorporation (MOI). Issued shares are the actual number of shares that have been distributed to shareholders. The difference represents the unissued shares that the company can potentially issue in the future.

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Q: Can a Minor Be a director or Shareholder of a Company?

A: A minor (under 18 years old) can be a shareholder but cannot be a director. Directors must be at least 18 years old to fulfil their legal responsibilities and management roles effectively.

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Q: What is the Difference Between COR 14.3 and COR 39?

A: COR 14.3 is a document received upon successful registration of a company, confirming its registration. COR 39 is issued after a director change, reflecting the updated director details. Both documents are necessary for updating the company’s records with banks and other entities.

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Q: What is a Consolidated Share Certificate?

A: A consolidated share certificate replaces multiple old certificates with a single new certificate that reflects the total number of shares held by the shareholder. The previous certificates are cancelled as part of this process.

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Q: Can a Share Certificate Expire?

A: No, a share certificate itself does not have an expiration date. However, it can be cancelled if the shares are transferred or if there are changes in ownership.

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Q: Can a Foreigner Be a director or Shareholder in a South African Company?

A: Yes, a foreigner can be a director if they have a South African address. They can also be a shareholder with an international address, allowing for foreign investment in South African companies.

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Q: What Are the Minutes and Resolution Documents Needed for Director Changes?

A: These documents outline the specifics of the director changes and must be signed by the directors on company letterhead. They include minutes of meetings where the changes were discussed, and resolutions passed to formalise the changes.

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Q: What is the Difference Between Directors and Members?

A: In Pty (Ltd) companies, directors manage the company’s operations. In CC (close corporations) companies, members are the owners and hold ownership percentages. The roles and responsibilities differ based on the company structure.

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Q: Can a Company Own Its Own Shares?

A: No, a company cannot own its own shares. Shares must be held by individuals or other entities. This rule prevents companies from buying back their shares and holding them as assets.

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Q: Do Director Changes Automatically Affect Share Changes?

A: No, changes in directors do not automatically affect shareholding. Changes in directors and shareholders are managed separately, and any adjustments to one do not directly influence the other.

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Q: Are Fractional Shares Allowed on a Share Certificate?

A: No, shares must be issued as whole numbers. Fractional shares are not permitted on share certificates.

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Q: What Are the Main Types of Shareholders?

A: The two main types of shareholders are:

1. Majority Shareholders: Own more than 50% of the shares and typically have control over the company.
2. Minority Shareholders: Own less than 50% of the shares and have less influence over company decisions.

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Q: What Are Key Shareholder Rights?

A: Shareholders have key rights, including:

1. Inspect Records: Access to the company’s records and financial statements.
2. Vote on Corporate Matters: Participate in voting on significant issues like mergers and board elections.
3. Receive Dividends: Entitlement to receive dividends as declared by the company.
4. Participate in Elections: Vote in shareholder meetings and elect directors.

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Q: What is the Difference Between Preferred and Common Shareholders?

A: Here is the key difference:

1. Preferred Shareholders: Have priority in receiving dividends and assets in case of liquidation but usually do not have voting rights.
2. Common Shareholders: Have voting rights and are entitled to dividends after preferred shareholders. They receive payment last in the event of liquidation.

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Q: What Is the New Beneficial Ownership Filing Requirements?

A: Entities must file beneficial ownership information with CIPC. As of April 2024, failure to comply with these filing requirements will prevent the entity from filing its annual returns, potentially leading to penalties or legal issues.

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Q: What is the Role of a Company Secretary?

A: A company secretary ensures that the company complies with legal and regulatory requirements. Responsibilities include:

1. Maintaining Statutory Records: Keeping accurate records of the company’s activities and decisions.
2. Filing Annual Returns: Ensuring timely submission of required documents and returns.
3. Documenting Meetings and Resolutions: Ensuring that board meetings and resolutions are properly documented and executed.
4. Acting as Liaison: Serving as a point of contact between the board of directors, shareholders, and regulatory authorities.

DISCLAIMER:

The information supplied in this document is not intended to be a guarantee of fact. In no event will The Tax Shop Polokwane West (Pty) Ltd be liable for any lost revenue, profit, or for direct, special, indirect, consequential, incidental or punitive damages however caused and regardless of theory of liability, arising out of the use of this document, even if The Tax Shop Polokwane West (Pty) Ltd has been advised of the possibility of such damages.