Introduction
This is one of my non- technical articles that I write from time to time. In this one I share with you why many organisations such as businesses always want a legal practitioner to be part of their boards. This also extends to non- business entities such as commissions, associations, trusts and many others.
Summary of areas covered by a legal practitioner as a director
A legal practitioner who is a member of the board of directors of a company is expected to and usually covers some or all of the areas listed below.
- General corporate governance
- Review of contracts
- Structuring of deals or transactions.
- Investment laws
- Mergers and acquisitions.
- Tax laws.
- Labour laws
- Civil litigation
- Legal risk and compliance.
Please note that the above areas may be covered by the company secretary who is a commercial lawyer.
General corporate governance
Most commercial or business lawyers have a good understood of corporate governance from shareholders, directors to management. Important advice is required on rights and obligations of shareholders, directors and rights and management. Common issues include the right to have directors on the board and how they are appointed or removed. Corporate governance also includes compliance with shareholder agreements, Companies and Other Business Entities Act (Chapter 24:31), articles and memorandum of association of companies and many other things.
Review of contracts
This role is very important. It is quite common in business for management to recommend contracts to the board. The board member with a legal background usually reviews such contracts for legal soundness and communicates his or her views through the board of directors. I have seen some contracts being amended or even abandoned after feedback from a lawyer sitting on the board.
Structuring of deals or transactions
This is related to but different from contract review. In this case the legal mind on the board advises the board on the best structure for deals or transactions. This is before a contract is drafted. Such structure may be on capital raising, shareholding, joint venture, sale and leaseback arrangements, etc.
Investment laws
Commercial lawyers also advise on investment laws such as mining, banking, construction, farming, property laws and many others. Related to that may be immigration laws, Zimbabwe Investments Development Authority (ZIDA) registration and licensing, Exchange Control compliance issues.
Mergers and acquisitions
This is quite common. A commercial lawyer on a board of directors can advise on mergers, where entities are combining into one, or acquisitions where one entities acquires and controls the other. Such transactions can be quite complex at times needing legal and finance people who are sophisticated. Mergers and acquisitions may come with many compliance requirements.
Tax laws
This is also an important area but occupied by a few lawyers. On a very light note, I am not sure whether the law uptake is due to difficulties in dealing with figures which may have influenced some of my learned colleagues in their career choices! I rest my case. Taxes may cover tax planning or resolution of tax disputes, etc.
Labour laws
This can easily be a busy area for the lawyer board member. Commercial lawyers are business lawyers and inevitable have to deal with labour issues though there are some law firms and lawyers who specialise in labour. Areas covered usually include employment contracts, disciplinary issues, conciliations, arbitration, etc.
Civil litigation
This involves non – criminal legal proceedings where one party sues the other. Common ones include legal action for overdue debts, labour matters, leases and other civil disputes. Civil litigation is quite wide. This is why there are civil courts and the High Court has a Commercial Division.
Legal risk and compliance
This is particularly important for regulated entities. Risk and compliance issues may include:
- Industry specific compliance.
- Regulatory compliance.
- Tax compliance.
- Environmental compliance.
- Local authority compliance.
Conclusion
The importance of a commercial lawyer on the board of directors cannot be overemphasized. To be without one is to be without cover. Without cover the business will be exposed to legal risks. To be forewarned is to be forearmed.
Disclaimer
This simplified article is for general information purposes only and does not constitute the writer’s professional advice.
Godknows (GK) Hofisi, LLB(UNISA), B.Acc(UZ), Hons B.Compt (UNISA), CA(Z), ACCA (Business Valuations) MBA(EBS, Heriot- Watt, UK) is the Managing Partner of Hofisi & Partners Commercial Attorneys, chartered accountant, insolvency practitioner, commercial arbitrator, registered tax accountant and advises on deals and transactions. He has extensive experience from industry and commerce and is a former World Bank staffer in the Resource Management Unit. He was recently appointed to sit on the Council of Estate Administrators in Zimbabwe. He writes in his personal capacity. He can be contacted on +263 772 246 900 or ghofisi@hofisilaw.com or gohofisi@gmail.com. Visit www//:hofisilaw.com for more articles. He writes weekly articles in the newspaper since 2020.
