Financial Data
Updated 29 Feb 2020

Guidelines on conducting safe business in South Africa (part 2)

In this two-part series, you will earn how to protect your business as you take it from strength to strength. 

Mareon Basson, 17 July 2017  Share  0 comments  Print

All the answers to your unique business lifestage questions

As previously discussed, if dealt with correctly, the recent changes in our economic climate will not vastly affect your company, if proper precautionary steps are taken, herewith are some additional guidelines to ensure that your business is safe-guarded in the long run.

1. The importance of a written supplier agreement 

A further pitfall relates to companies entering into verbal agreements with their suppliers, which results in them having to trust someone’s word.

This generates serious problems when there is a dispute and/or breach by one of the parties, as there are no clearly defined rights, responsibilities and terms regulating their relationship. If a supplier does not want to conclude a written agreement with the company, chances are they will either not keep to the agreement, or the goods provided will be defective in some way or other. 

Related: Corporate governance and corporate sustainability

In turn this creates greater expenses for your company and leaves the company in a situation where it must prove the existence of an agreement and what the rights and obligations of both parties were. 

A supplier agreement is of relevance when drafting agreements with clients, as timelines and payments are involved in ensuring the end-product is given to the client on time.

Factors such as deliveries, returns, order methods, and payment terms and methods are of great importance. Further, if there is no certainty or timeline ensuring delivery of certain products to the company from a supplier, clients will be reluctant to enter into any agreement with the company.

Vice versa, in the event of the company being the supplier, it is necessary to ensure that a supplier agreement is in place, so as to enable the company to calculate its cashflow and determine when certain monies will be due to them.

2. Corporate governance of the company

Corporate governance refers to the structures and processes for the direction and control of companies concerns the relationships among the management, board of directors, controlling shareholders, minority shareholders and other stakeholders.

Good corporate governance contributes to sustainable economic development by enhancing the performance of a company and increasing its access to outside capital.

The definition focuses on three key elements: 

  1.  “Direction” refers to all the decisions that relate to setting the overall strategic direction of the company such as:
    1. long-term strategic decisions;
    2. large-scale investment decisions;
    3. mergers and acquisitions; and
    4. succession planning and appointment of key senior managers, such as the CEO of a company.
  2. “Control” refers to all the actions necessary to oversee the management’s performance and follow up on the implementation of the strategic decisions set above.
  3. “Relationship among the main governing bodies of the company” refers to the interactions among the shareholders, directors of the board, and managers. An important element of any good corporate governance structure is the clear definition of the role, duties, rights, and expectations of each of these governing bodies.

Related: Everything you need to know on King IV and corporate governance in South Africa

To ensure that good corporate governance is in place, it will be necessary for a company to revisit its Memorandum of Incorporation, which, in most instances, governs all the above. 

Once again, it is advisable to approach an attorney in this regard, to ensure that any and all agreements necessary for the company is drafted in accordance with the company’s specific needs, as well as within the scope of the legislation and industry specific regulations. It is clear from the above that to ensure a company is safe guarded, it will be necessary to approach an attorney to assist in various aspects of the business.

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About the author

Mareon Basson

Mareon Basson obtained LLB degree in 2013, she completed her articles at KEBD Inc in Pretoria and was admitted as an attorney in May 2014. Thereafter she was appointed as an associate at KEBD Inc in their corporate and commercial law department. In March 2017, Mareon joined the team of SchoemanLaw Inc in Cape Town as a Junior Associate. Her passion lies predominantly in commercial law.

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