The Business Judgment Rule: When is it applicable?
When running a business there are going to be times where the directors in charge will have to make difficult decisions and take risks in order to either save the company or to seal a big deal and gain financially, the notion of “risk for reward”. As a director, one would be required to make a decision that would be in the best interest of the company, but sometimes these decisions end up being bad for the company, as it suffers financial damage and someone needs to take responsibility for it. It is important for a director to be able to make decisions without fear, but how would one even take a risk with the “what if it fails” sword hanging over one’s head, knowing that you as a director might have to repay the monies the firm lost out of your own pocket. This is where the Business Judgment Rule, introduced by the Companies Act 71 of 2008 (“the Act”) comes in, and it serves as protection for directors which allows them to make informed decisions without the fear of liability. However, the Business Judgment Rule can only be used if all the requirements as set out in the Act are complied with. Section 76(3) of the Act deals with the respective duties of directors, and states that directors perform duties in good faith, in the best interest of the company and with care, skill and diligence that may reasonably be expected of a person carrying out the same functions in relation to the company as those carried out by that director and having the general knowledge, skill and experience of that director. This is subject to Section 4 and Section 5 of the Act in which the circumstances which indicate whether a director has acted responsibly are set out. These circumstances are as follows: Whether the director has taken reasonably diligent steps to become informed about the matter. This would require the director to actively do research about the matter in order to be adequately informed and bare the knowledge to act confidently. Whether the director had no material personal financial interest in the matter of the decision and had no reasonable basis to know that any related person had a financial interest in the matter. The Act defines personal financial interest to mean a direct material interest of that person, of a financial or economic nature to which a monetary value may be attributed and it does not include any interest held by a person in a unit trust, unless that person has a direct control over the investment decision of that fund. Whether the director complied with the requirements of Section 75 with respect to any interest contemplated in the above mentioned requirement. Whether the director made a decision, supported a decision of a committee or board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interest of the company. All of the above requirements have to be met in order for a director to be able to use the Business Judgment Rule as a defence and be excluded from liability for actions that were taken in good faith. Reference List: The Companies Act 71 of 2008 This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Proposed harsher penalties for applicants who lie on their CVs
According to an IOL report dated 31 January 2019, the number of false qualifications is on the rise in the country, with 97 national qualifications that were found to be fraudulent and misrepresented during the period of October-November 2018. Therefore, as a response to this shocking statistic, the National Qualifications Amended Bill was introduced into the National Assembly and the changes discussed hereunder could be effected. The National Qualifications Framework Act No. 67 of 2008 (“The Act”) is proposed to apply to every qualification and/or part-qualification that must be registered in terms of the Act. The South African Qualifications Association (“SAQA”) must, in order to advance the objectives of the Act verify all qualifications or part-qualifications and make a decision on the status thereof. Any person who claims that a qualification or part-qualification has been awarded to him/her by an educational institution, skills development provider or foreign institution whereas in fact no such qualification or part-qualification has been awarded, will be guilty of an offence and will be liable on conviction to any sentence which may be imposed for an offence of fraud. This means that if an applicant lies on his/her CV about whether having the necessary qualification will be guilty of the offence of fraud. Any person or educational institution who claims that he/she/it is offering any qualification or part-qualification that is registered in terms of the Act, whereas such qualification or part-qualification is not registered, is guilty of an offence and is liable on conviction to any sentence that may be imposed for the offence of fraud. Any person or educational institution who claims that he/she/it is accredited by a legally recognised body to offer any qualification or part-qualification whereas no such accreditation was granted, will be guilty of an offence and will be liable on conviction to any sentence that may be imposed for the offence of fraud. Any person who produces a certificate, diploma, degree, computer printout and/or any falsified records in connection with a qualification or part-qualification, to the prejudice of any other person, will be guilty of an offence and will be liable on conviction to any sentence that may be imposed for forgery. Any person who passes off a certificate, diploma, degree, computer printout or any falsified records in connection with a qualification or part-qualification, to the prejudice of another person, will be guilty of an offence and will be liable on conviction to any sentence that may be imposed for uttering. What if I help someone or know of any person who has falsified or incorrectly misrepresented the presence of a qualification or part-qualification? Any person who conspires with any other person and/or incites, instructs, commands or procures another person to commit an offence in terms of this Act, is guilty of an offence of aiding, abetting, inciting, conspiring another person to commit an offence in terms of this Act and is liable on conviction to a fine or imprisonment not exceeding 3 (three) years or to both such fine and imprisonment. What factors will the court take into consideration when sentencing an individual who has lied on his/her/their CV? A court which imposes any sentence in terms of this amendment bill must, without excluding any other relevant factors, consider aggravating factors such as the extent of the prejudice and loss suffered by the complainant as the result of the commission of such an offence; and the extent to which the person gained financially, or received any favour, benefit or reward from the commission of the offence. The proposed Amendment Bill is a step in the right direction in the combat of fraud nationwide. This has specific bearing on those candidates in high-profile employment positions such as, but is not limited to, CEOs and politicians. Reference List: National Qualifications Framework Act 67 of 2008. National Qualifications Framework Amendment Bill (Government Gazette No. 40430 of 18 November 2016). IOL report: 31 January 2019. This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)
Korporatiewe beheer – PBO’S NPO’S en NPC’s
Daar bestaan baie verwarring rondom die onderskeid tussen ’n ‘Public Benefit Organisation (“PBO”)’, ‘Nonprofit Organisation (“NPO”)’ en ’n ‘Nonprofit Company (“NPC”)’. Alhoewel daar soortgelyke karaktereienskappe tussen hierdie liefdadigheidsentiteite bestaan en alhoewel hulle in ’n sekere mate met mekaar verband hou, is elkeen van hierdie tipes entiteite verskillend van die ander entiteite en elkeen dien ’n ander doel. Elkeen van voornoemde entiteite word ook by verskillende regeringsorganisasies en departemente geregistreer, wat die onderskeid verder beklemtoon. ’n NPO word gedefinieer deur die Nonprofit Organisations Act No 71 of 1997 as ’n trust, maatskappy of enige ander assosiasie van individue wat gestig word vir: ’n publieke doel; en waarvoor die inkomste en eiendom nie verdeel word onder die direkteure of lede andersins as vir die verkryging van redelike vergoeding vir dienste gelewer aan die entiteit nie. Die doel rondom die registrasie van ’n organisasie as ’n NPO is om toelaes te ontvang vanaf die regering, soos byvoorbeeld fondse wat verkry word vanaf die Nasionale Lotery Raad. ’n NPO word geregistreer by die Departement van Sosiale Ontwikkeling. ’n NPC word gedefinieer deur die Maatskappywet No 71 van 2008 (“die Wet”) as “’n maatskappy wat: geïnkorporeer word vir openbare voordeel soos vereis word deur item 1(1) van Skedule 1 van die Wet; en waarvan die inkomste en eiendom nie verdeel word onder die direkteure, beamptes of persone wat verbind is enigsins tot die maatskappy nie.” ’n Organisasie moet aansoek doen om geregistreer te word as ’n NPC by die Companies and Intellectual Property Commission (“CIPC”). Die organisasie sal dan dieselfde eienskappe en voordele hê van ’n privaat of openbare maatskappy. ’n NPC kan met of sonder lede geregistreer word. Die Inkomstebelastingwet 58 van 1962 (“die Inkomstebelastingwet”) definieer ’n PBO as enige organisasie wat: ’n nie-winsgewende maatskappy, trust of assosiasie van persone is soos gedefinieer in artikel 1 van die wet wat geïnkorporeer of gevorm is in terme van wetgewing; of enige tak van ’n maatskappy, assosiasie of trust wat geïnkorporeer of gevorm is en wat vrygestel is van inkomstebelasting waarvan die hoofdoelwit is om een of meer openbare belang aktiwiteite te dryf waar – sulke aktiwiteite uitgevoer word op ’n nie-winsgewende manier met ’n filantropiese bedoeling; en hierdie aktiwiteite nie bedoel is om direk of indirek enige belanghebbende of werknemer van die organisasie ekonomies te bevoordeel nie, andersins as vir betaling van redelike vergoeding vir die werknemer of belanghebbende se diens aan die maatskappy; en die aktiwiteite wat deur die organisasie uitgevoer word vir die voordeel is van die wyer publiek. Wanneer daar verwys word na ’n PBO, word daar nie verwys na ’n organisasie wat geregistreer of geïnkorporeer moet word as ’n liefdadigheidsentiteit soos by ’n NPC of NPO nie. Die doel van PBO-status is om die organisasie die geleentheid te bied om vrygestel te word vir belastingdoeleindes. Vir ’n organisasie om te kwalifiseer vir PBO-status, moet ’n organisasie onder andere een of meer van die verskeie ‘openbare belange aktiwiteite’ beoefen in terme van die Inkomstebelastingwet. ’n Aansoek vir PBO-status word aan die Suid-Afrikaanse Inkomstediens (“SAID”) gerig. Dit is belangrik om daarop te let dat alhoewel ’n NPO, NPC en ’n entiteit met PBO-status verskillende karaktereienskappe het, sluit die werking van een van hierdie tipes organisasies nie die werking van ’n ander een uit nie. ’n Organisasie kan dus registreer as ’n NPO, NPC en PBO solank as wat al die kriteria en vereistes vir die tipe registrasie aan voldoen word. Hierdie artikel is ‘n algemene inligtingstuk en moet nie gebruik word of op staatgemaak word as regs- of ander professionele advies nie. Geen aanspreeklikheid kan aanvaar word vir enige foute of weglatings of vir enige verlies of skade voortspruitend uit vertroue geplaas op inligting hierin vervat nie. Behoudens foute en weglatings (BFW).