Director owes duty to firm when leaving

2019-06-19 06:01
Damian Viviers

Damian Viviers

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Question:I am a director and a shareholder in a local design company. I also have an employment contract. Lately, I have been at loggerheads with my co-directors about the direction of the business. I just feel we want different things. I have 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?

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

A director of a company is entrusted by the shareholders 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.

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.

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.

Directors owe a duty to the company, even after they leave their position as a director, and may not disclose or divulge any secret or confidential information of the company to third parties, that he or she gained in his or her position as a director.

Employees must consider the provisions of their employment agreement and take note of any confidenti­ality, non-compete or restraint of trade clauses that may impede their ability to engage in commercial or employment activities after they leave the employment of the company.

Similarly, when such a person exits the company as a shareholder, regard should be paid to the provisions of any shareholders agreement that was concluded between the shareholders of the company to govern their relationship.

Therefore, while generally one is free to use their skills, experience and expertise gained at a company in the open market, you may be prevented from (at the very least) sharing any secret or confidential information of the company gained during your involvement with the company with third parties, or using such knowledge to compete with the company.

To help you establish clearly what restrictions exist to you establishing a new company, it would be advi­sable to consult with your attorney to review any contractual and fiduciary restrictions that may exist before you proceed to establish your new business.– Damian Viviers, asso­ciate, Phatshoane Henney Attorneys


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