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I am a director, how should I be paid?

In our previous newsletter, we touched on the question whether you can be regarded as a director of a company or not.

Today we look at the formalities regarding remuneration paid to directors.

What is directors’ remuneration?

Remuneration is defined as fees paid to directors for services rendered, salaries, bonuses and performance-related payments, pension contributions, options and financial assistance.

It is important to distinguish between two different types of remuneration paid to directors :

  1. Fees received for the performance of your day to day duties towards the company, as an employee of the company, and as prescribed in the job description clause in your service agreement, which is not regarded as directors’ remuneration.
  1. Fees received for the duties performed relating to the fact that you are a director of the company. This, for instance, includes attendance of board meetings, time spent on board related matters, etc., which is regarded as directors’ remuneration.

What are the requirements of the Companies Act of 2008 regarding directors’ remuneration?

Section 66(8) of the Act provides that ‘Except to the extent that the Memorandum of Incorporation of the company provides otherwise, the company may pay remuneration to its directors for their services as directors, subject to subsection (9).’

Section 66(9) provides that ‘Remuneration contemplated in subsection (8) may be paid only in accordance with a special resolution approved by the shareholders within the previous two years.’

A special resolution is a resolution adopted at a shareholders’ meeting, with the support of at least 75% of the voting rights exercised on the resolution, or any other percentage as contemplated in the Memorandum of Incorporation.

What does this mean?

A special resolution is required for the payment of directors’ fees, therefore fees paid to directors for their attendance at board and other meetings and for providing services as directors.

The Memorandum of Incorporation may limit or negate the ability of the company to pay directors’ fees but will not be able to provide that a special resolution is not required.

This section does however not limit the ability to pay salaries of executive directors in their capacity as employees. “Service as Directors” clearly refers to service in the capacity as a director and not in any other capacity, as explained, as employee of the company.

Conclusion

A special resolution should be passed at a shareholders’ meeting every two years for remuneration of directors other than remuneration received by the directors as employees.

Should you have any enquiries regarding this matter, do not hesitate to contact Joanie Viviers at joanie@asl.co.za or 021 840 1600.