The Duties and Responsibilities of a Director of a Small Company (or Start-up) in South Africa
A Practical Guide for Entrepreneurs, Owner-managers and SME directors
By Leon Terblanche, LL.M (International Law)
Introduction
Starting a business is exciting. Whether you have launched a family business, a technology start-up, a consulting practice or a growing manufacturing company, becoming a director is an important milestone.
Many entrepreneurs spend years developing their products, finding customers and building their businesses. Surprisingly few take the time to understand what it actually means to become a company director.
One of the most common misconceptions I encounter is:
“My accountant looks after all the legal requirements.”
Your accountant plays an essential role in your business. They prepare financial statements, advise on tax matters and assist with statutory compliance. However, they cannot assume your legal responsibilities as a director.
Under the Companies Act 71 of 2008, every director has personal legal duties and responsibilities. These duties cannot simply be delegated to an accountant, attorney or company secretary.
Fortunately, good corporate governance is not reserved for large listed companies. It begins with directors making informed decisions, acting ethically and exercising proper oversight of their businesses.
This article provides a practical overview of the duties and responsibilities of directors of small private companies and start-ups in South Africa, with reference to the Companies Act, King IV, and the recently introduced King V Code on Corporate Governance, effective for financial years beginning on or after 1 January 2026.
- Being a Director Means More Than Owning the Business
Many small businesses have one or two shareholders who are also the directors.
Although these roles are often performed by the same people, they are legally different.
As a shareholder you own the company.
As a director you manage the company.
When making Board decisions you are acting as a director, not simply as the owner.
The Companies Act expects directors to exercise independent judgment and to act in the interests of the company itself.
- Your Primary Duty is to the Company
Section 76(3) of the Companies Act requires every director to:
- act in good faith;
- act for a proper purpose;
- act in the best interests of the company; and
- exercise the degree of care, skill and diligence reasonably expected of someone performing those functions.
This means your personal interests must never override those of the company.
Best Practice
Whenever making an important decision, ask yourself:
“Is this decision genuinely in the best interests of the company?”
- You Cannot Simply Leave Everything to Your Accountant
One of the biggest myths in small business is that compliance belongs entirely to the accountant.
Your accountant may assist with:
- annual financial statements;
- tax returns;
- VAT;
- payroll;
- annual returns.
However, directors remain responsible for ensuring that these obligations are actually fulfilled.
If statutory returns are not submitted, taxes are not paid or proper accounting records are not maintained, the responsibility ultimately rests with the directors.
Think of your accountant as an adviser—not as a substitute for the Board.
- Exercise Care, Skill and Diligence
Section 76(3)(c) requires directors to exercise reasonable care, skill and diligence.
This does not mean you must be an expert in accounting, taxation or law.
It does mean you should:
- prepare for meetings;
- understand important contracts;
- ask questions when something is unclear;
- seek professional advice before making major decisions.
Directors who ignore obvious warning signs cannot later claim ignorance.
- Understanding the Business Judgment Rule
Running a business involves taking calculated risks.
Markets change.
Customers leave.
New competitors emerge.
Fortunately, Section 76(4) provides protection where directors:
- act honestly;
- are properly informed;
- have no personal conflict;
- genuinely believe they are acting in the company’s best interests.
This is known as the Business Judgment Rule.
The law does not expect directors to make perfect decisions.
It expects them to make informed decisions.
- Conflicts of Interest Must Be Managed
Directors often do business with people they know.
Sometimes this involves family members.
Sometimes another company they own.
Section 75 requires directors to disclose personal financial interests.
Transparency protects both the director and the company.
Best Practice
Declare potential conflicts before discussions begin and ensure they are recorded in the Board minutes.
- Financial Oversight is a Director’s Responsibility
Every director should understand:
- how profitable the business is;
- whether cash flow is healthy;
- what the major financial risks are;
- whether taxes are up to date;
- whether creditors can be paid.
You do not need to prepare the accounts yourself.
You do need to understand them.
One of the first questions any court will ask after a company experiences financial difficulties is:
“What did the directors know, and when did they know it?”
- Keep Proper Records
Many disputes arise simply because no records exist.
Maintain:
- Board resolutions;
- shareholder resolutions;
- contracts;
- financial records;
- employment agreements;
- statutory registers.
Good records protect directors.
Poor records create unnecessary legal risk.
- Compliance is Not Optional
Small businesses must still comply with legislation.
Depending on the nature of the business this may include:
- Companies Act;
- Income Tax Act;
- VAT Act;
- Labour legislation;
- POPIA;
- PAIA (where applicable);
- Occupational Health and Safety legislation.
Compliance should become part of normal business operations rather than something considered only when problems arise.
- Ethical Leadership Starts at the Top
King IV introduced ethical leadership as the foundation of corporate governance.
King V continues this principle, placing greater emphasis on organisational culture, responsible decision-making and long-term sustainability.
Employees generally mirror the behaviour of management.
If directors ignore policies or cut corners, employees are likely to do the same.
Culture always begins with leadership.
- Risk Management is Not Only for Large Corporations
Many small businesses assume risk management is something only listed companies need.
Nothing could be further from the truth.
Common risks include:
- cybercrime;
- fraud;
- ransomware;
- key employee dependency;
- supplier failure;
- regulatory penalties;
- reputational damage.
Discuss these risks regularly.
Small businesses often recover more quickly from market changes than large organisations—but only if directors recognise risks early.
- Learn from Steinhoff
South Africa’s corporate history offers many lessons.
The collapse of Steinhoff International Holdings N.V. demonstrated that even large, sophisticated organisations can fail when governance breaks down.
One of the clearest lessons is that directors should never simply accept information without asking questions.
Healthy Boards challenge assumptions.
They request explanations.
They insist on transparency.
Good governance begins with curiosity.
- What the Courts Have Said
South African courts have consistently confirmed that directors owe fiduciary duties to the companies they serve.
In Howard v Herrigel and Another 1991 (2) SA 660 (A), the Appellate Division held that directors must act in the interests of the company and may not place personal interests ahead of those of the company.
In Fisheries Development Corporation of SA Ltd v Jorgensen 1980 (4) SA 156 (W), the court confirmed that directors must exercise the degree of care, skill and diligence expected from someone occupying their position.
These principles are now reflected in Section 76 of the Companies Act.
- Practical Governance Tips
Even the smallest company should:
- hold regular Board meetings;
- record important decisions;
- monitor cash flow monthly;
- review legal compliance;
- identify key business risks;
- disclose conflicts of interest;
- obtain professional advice when necessary.
Governance is not about creating paperwork.
It is about making better decisions.
- Five Questions Every Director Should Ask Every Month
A useful discipline for owner-managed businesses is to ask these questions at least once a month:
- Are we still solvent and financially healthy?
- Are all statutory obligations up to date?
- What are our biggest business risks right now?
- Have any conflicts of interest arisen?
- If this decision were scrutinised by a court, could I explain why it was in the company’s best interests?
These simple questions encourage proactive governance and reduce the likelihood of unpleasant surprises.
Conclusion
Directorship is more than a title—it is a legal office carrying significant responsibilities.
The Companies Act establishes the legal framework within which directors must operate, while King IV and King V provide practical guidance on ethical leadership, accountability and sound governance.
For directors of small companies and start-ups, good governance should never be viewed as an unnecessary administrative burden. On the contrary, it is one of the foundations of a successful and sustainable business.
You may delegate accounting, taxation, payroll or administrative functions to trusted professionals, but you cannot delegate your responsibilities as a director.
The most successful businesses are led by directors who remain informed, ask the right questions and take an active interest in the affairs of their companies.
Good governance is not about making business more complicated.
It is about making better decisions, reducing risk and building a company that can grow with confidence.
References
- Companies Act 71 of 2008 (particularly sections 75, 76 and 77).
- Institute of Directors in South Africa, King IV Report on Corporate Governance for South Africa (2016).
- Institute of Directors in South Africa, King V Code on Corporate Governance (effective for financial years commencing on or after 1 January 2026).
- Howard v Herrigel and Another 1991 (2) SA 660 (A).
- Fisheries Development Corporation of SA Ltd v Jorgensen 1980 (4) SA 156 (W).
About the Author
Leon Terblanche, LL.M (International Law) is an International Business Law Consultant and corporate governance specialist with extensive experience in South African company law, non-profit governance and regulatory compliance. His postgraduate research focused on corporate governance and board accountability following the collapse of Steinhoff International N.V. He advises companies, non-profit organisations and industry associations on governance frameworks, constitutional documents and board best practices.
