Business Liabilty ( partner - director)

[JanChris]

I would like some feedback (legal or experience) on the following: I was offered a partnership in another business and the meeting will take place tomorrow to finalise the documents. I want to know if I become a partner and director in that business, and the business goes belly up, will my personal assets be attached? Or should I seek legal advice?

[CLIVE-TRIANGLE]

Yes only if;
You have signed surety, or
You allowed the company to trade recklessly (in other words will it was technically or factually insolvent)

[JanChris]

Yes only if;
You have signed surety, or
You allowed the company to trade recklessly (in other words will it was technically or factually insolvent)

Thanks, the company was voluntary made insolvent and the same owner starting a "new" similar company has mentioned that he wants to offer me partnership or appoint me to manage his company. I don't want to get caught with any funny business.

[HR Solutions]

Thanks, the company was voluntary made insolvent and the same owner starting a "new" similar company has mentioned that he wants to offer me partnership or appoint me to manage his company.

This should send warning bells ...... ? and you should make your decision based on this and the above post, because he is totally correct.

[JanChris]

This should send warning bells ...... ? and you should make your decision based on this and the above post, because he is totally correct.

Thanks, will keep it in mind. I will certainly do my homework before making a decision.

[Justloadit]

Hmmmm
What were the conditions of the voluntary liquidation.

If there were outstanding creditors, then these would have been loses to the creditors, and if he started up again, I am pretty sure that they would not supply, however being a new face knocking on their door may allow them to let their guard down.

It all depends on what is on the table, responsibilities, finance, profit sharing, salary, etc.

Always start off with the case that it goes south, what will happen to you.

[sterne.law@gmail.com]

There is an issue of partnership and not close corp or company.
When a partner in a partnership you enter as you, an individual.
Therefore, if all goes South you will be liable in a personal capacity.

If it is a company or cc, then liability extends to shareholding and/or the agreement. As stated if you have signed a surety then a creditor can collect on that.
The companies act also allows for a personal claim where there was recklessness or delinquency by a director/s, which then allows a claim to be against them in their personal capacity.

Even if liquidated and a new company is started, creditors can pierce the corporate veil and attack the new entity for assets and such.
If he traded as a partnership before, that partnership is over, however creditprs chasing an individual could attack a partnership because the person enters into that as the self same person.

[Richard S]

If I look back at all the partnerships I have known in the past 30 years - been in a few myself - very few have survived happily. In my experience most end badly. My advice, make sure the business is in a legal entity, come to an agreement that you will manage the business for a fixed period - you will soon find out if there is bad news concerning unpaid bills or uncollectable invoices and the like - and then if you are comfortable with the situation, you can elect to take on a directorship.

Be very careful about getting sucked in to cover a small debt here or there, that is a very bad sign and it will soon escalate out of your control.

Do nothing without legal council - yours, definitely not his. I am no legal but have learnt the hard way. Repeatedly, I am sorry to admit!

[Phil Cooper]

Hi

Below is article produced by an Insurer who specialises in Director's and Officer's Liability Insurance. It is becoming essential, as Directors are now judged on decisions made based on information that they SHOULD have known, and not just on that they DO know.

King III and the introduction of The Companies Act in 2008 has rendered Directors’ and Officers’ Liability Insurance crucial for all companies regardless of size or incorporation. Directors and Officers now find themselves in a far more onerous position than ever before, with legislation holding them more accountable for any wrongful act or negligent actions, as well as breaches of their fiduciary duties.

Moving South Africa in line with international trends of Alternate Dispute Resolution (ADR), the King III Report recommends that ADR clauses be included in all business contracts. It suggests that mediation should be used as a management tool and as a dispute resolution instrument that allows for efficient, cost-effective and private settlements. The Camargue D&O product comes with the use of dispute resolution services. A director would have already covered that aspect of his/her duty toward the company by purchasing the insurance policy.

The Companies Act No. 71 of 2008 also changes the business landscape substantially, as far as the incorporation, administration and management of companies is concerned. Ushering in a new era of uncharted territory for Directors and Officers in South Africa, no person should consider taking up a position as a Director before ensuring that there is a Directors’ and Officers’ Liability insurance policy in place. When a board of directors is assembled, Directors and Officers Liability insurance becomes mandatory.

D&O Liability Insurance provides financial protection for the Directors and Officers of a company in the event they are sued in conjunction with the performance of their duties as they relate to the company. Since a Director can be held personally responsible for acts of the company, most Directors and Officers will demand to be protected rather than put their personal assets at stake. Fortunately the enormous responsibilities facing business leadership need not go unprotected: Section 78 (3) of the new Companies Act allows for the indemnification of Directors and the purchase of D&O liability insurance. Think of Directors and Officers Insurance as a management Errors and Omissions policy.

If you would like more info, let me know...

[JanChris]

The company that I was offered a partnership in, is a small company and the "owner" has no management experience and that's why he wants me to manage the company. Would it not be safer to register my vehicles and other assets to a family member. I can assure you that I will not allow any "funny" business within the company, there will most definitely be an agreement regarding responsibilities and duties. Are all these new company laws not making it more difficult to start up? I have just registered my other company and I am the only director, it makes it rather costly to have all these rules in place.

[CLIVE-TRIANGLE]

To clarify a bit on the above matter; it is less applicable to traditional private companies. By that I mean owner managed; where all shareholders are also directors and all directors are also shareholders.

To understand the risks you need to understand that the company, the board and the shareholders are three separate juristic groups. A company, represented by even a single or more shareholders, or by a single or more directors, can sue a director for losses it incurs as a result of a director's actions (or inaction). It follows then that directors / shareholders are unlikely to sue themselves.

The moment there is a shareholder who is not a director, these risks arise and directors become exposed to personal litigation by either the company, or it's shareholders.