Guide for South African boards

Section 76(4) checklist: the business judgement rule, test by test

Last updated 21 October 2026

Section 76(4) of the Companies Act, 2008 is South Africa's statutory business judgement rule. It sets out when a director is treated as having met two of their core duties on a particular matter. This guide explains the rule in plain language and lists what a board record should show for each test.

The duties the rule relates to

Section 76(3) requires a director, when acting in that capacity, to exercise their powers and perform their functions:

(a) in good faith and for a proper purpose;
(b) in the best interests of the company; and
(c) with the degree of care, skill and diligence that may reasonably be expected of a person carrying out the same functions as that director, and having the general knowledge, skill and experience of that director.

The business judgement rule in section 76(4)(a) relates only to duties (b) and (c). It does not deal with acting in good faith and for a proper purpose.

What section 76(4) says

In respect of any particular matter, a director will have satisfied the obligations in section 76(3)(b) and (c) if all three of these are true:

(i) the director has taken reasonably diligent steps to become informed about the matter;
(ii) either the director had no material personal financial interest in the subject matter of the decision, and had no reasonable basis to know that any related person had a personal financial interest in the matter; or the director complied with the requirements of section 75 with respect to any such interest; and
(iii) the director made a decision, or supported the decision of a committee or the board, with regard to that matter, and the director had a rational basis for believing, and did believe, that the decision was in the best interests of the company.

Section 76(4)(b) adds that a director is entitled to rely on the performance of certain people, and on information, opinions, recommendations, reports or statements — including financial statements and other financial data — that those people prepared or presented.

The three tests in plain language

1. Did the director take reasonably diligent steps to become informed?

The test looks at the steps the director took, not at whether the outcome was good. Reading the papers, asking questions, asking for missing information and allowing enough time to consider it are all steps. A record made at the time is the clearest way to show what those steps were.

2. Was any personal financial interest absent, or properly dealt with?

Either the director had no material personal financial interest (and no reasonable basis to know a related person had one), or they followed section 75. Under section 75, a director with a personal financial interest in a matter before the board must, among other things, disclose the interest and its general nature before the matter is considered, leave the meeting after making the required disclosures, and not take part in considering the matter. Section 73(6)(a) requires those declarations to be included in the board minutes.

3. Did the director have a rational basis for the decision, and believe it?

This has two parts: a rational basis for believing the decision was in the company's best interests, and actually believing it. The reasons, the alternatives considered and how risks were weighed show the basis. The rule asks whether the basis was rational, not whether the decision turned out to be right.

Relying on others: section 76(4)(b) and 76(5)

Under section 76(5), a director is entitled to rely on:

employees of the company whom the director reasonably believes to be reliable and competent in the functions performed or the information provided;
legal counsel, accountants or other professional persons retained by the company, the board or a committee, on matters the director reasonably believes are within that person's professional or expert competence, or as to which that person merits confidence; and
a committee of the board of which the director is not a member, unless the director has reason to believe that the committee's actions do not merit confidence.

A director may also rely on people to whom the board may reasonably have delegated, formally or informally by course of conduct, the authority or duty to perform board functions that are delegable under applicable law. Reliance is only as strong as the reasons for it — so record who provided the information, and why the board considered them reliable.

Checklist: what the board record should show

Use this for each material decision. It is a record-keeping checklist, not a legal test: ticking every item does not decide whether a director met their duties.

s76(4)(a)(i)

Reasonably diligent steps to become informed

The question the board was asked to decide, and what it was not deciding.
Every paper, report and presentation that was before the board, with its version and the date it was circulated.
Which claims in the papers were supported by evidence, and where — document, version and page.
Information that was asked for but missing, recorded as a gap rather than left out.
The questions directors asked, and the answers given, including follow-up requested before the vote.
Enough time between circulation and the meeting to read the papers, or a note of why the matter was urgent.

s76(4)(a)(ii)

No undisclosed material personal financial interest

Each director's declaration that they have, or do not have, a personal financial interest in the matter.
Any interest of a related person the director knew of or had reason to know of.
Where an interest was declared: its general nature, any material information disclosed, that the director left the meeting, and that they took no part in the decision (section 75).
The declarations themselves, minuted as section 73(6)(a) requires.

s76(4)(a)(iii)

A rational basis for believing the decision was in the company's best interests

The recommendation and the reasons given for it.
The alternatives considered, including doing nothing, and why they were not preferred.
The main assumptions, and which of them were tested.
The principal risks, and how they are to be managed or monitored.
The contrary case — the strongest argument against the recommendation — and how the board weighed it.
Any conditions attached to the approval, and the uncertainty that remained when the board decided.

s76(4)(b) and 76(5)

Reliance on others

Who prepared or presented each piece of information the board relied on — an employee, adviser or board committee.
Why the board considered that person reliable and competent, or the matter within the adviser's professional competence.
Where reliance was on a committee the director does not sit on: the committee's report, and anything that might suggest it did not merit confidence.
Which functions were delegated, to whom, and under what authority.

Also required by the Act

Minutes of every board and committee meeting, including every resolution adopted and every section 75 declaration (section 73(6)).
Board resolutions dated and sequentially numbered (section 73(7)).
Minutes and resolutions of directors and directors' committees kept for seven years (section 24(3)(f)).

For a decision taken outside a meeting, see the directors' resolution template.

How DecixionIQ keeps this record

DecixionIQ records each material decision as it is made: the question, each claim linked to its source document, version and page, evidence gaps recorded as gaps, challenge questions and answers, declared interests and recusals, alternatives, risks, the recommendation with its contrary case, and the approval by the person or body with authority. The approved case is frozen and cannot be edited afterwards. It does not decide whether section 76 has been met.