The Importance of Director Election

In terms of section 66(4)(a)(i) a company’s MOI may provide for the direct appointment or removal of one or more directors, by any person who is named in or determined ito the MOI of that company.

In terms of section 67(1) each incorporator of a company is a first director of the company and serves until sufficient other directors to satisfy the requirements of the Act or the company’s MOI have been either first appointed or first elected.

In terms of section 68(1) each director of a profit company, other than the first director, must be elected by the persons entitled to exercise voting rights in such an election, to serve for an indefinite term, or for a term as set out in the MOI.

In terms of section 68(3) the Board may appoint a person who satisfies the requirements for election as a director to fill any vacancy and serve as a director of the company on a temporary basis until the vacancy has been filled by an election ito section 68(2), unless the MOI of the company provides otherwise.

The MOI may also provide that a person holding some office, title, or designation will be an ex officio director ito section 66(4)(a)(ii). The MOI may specifically restrict the powers, function and duties of an ex officio director ito section 66(5)(b)(i).

It must be noted that at least 50% of the directors and 50% of alternate directors of a profit company, other than a state-owned company, must be elected by shareholders ito section 66(4)(a)(iii).

In terms of section 68(1) the default arrangement of the Act is that elected directors serve indefinitely. The MOI may specify a term. As the MOI creates contractual rights for directors, an indefinite term may expose the company to a larger claim for damages should the director be removed by shareholder resolution.

In terms of section 71(1) despite anything to the contrary in a company’s MOI or Rules, or any agreement between a company and a director, or between any shareholders and a director, a director may be removed by an ordinary resolution adopted at a shareholders’ meeting by the persons entitled to exercise voting rights in the election of that director.

It is important to note that only elected directors may be removed by an ordinary resolution and not appointed directors.

Directors of listed companies may not be appointed for life and it is a Listing Requirement that a third of the directors must retire each year, in terms of JSE Limited Listings Requirements, Schedule 10, para. 10.16(g)