Who are directors?
Directors are a major group of stakeholders in a company. One cannot think of a company without directors. Many different theorists have defined directors in many different ways. The evolution of company law and the new changes in company law have actually separated the company ownership from its management. In registered companies, the ownership is vested in the shareholders, whilst management is delegated to a small group of stakeholders and they are called the “Directors” of a company. From company to company the number of directors changes. For example a public company must have at least two directors and private companies should have at least one. The manner they are appointed and the numbers of the directors are mentioned in the articles of the company. but above mentioned numbers are the statutory requirements. A company may need directors because it’s not a natural person even though it is a legal person. Basically directors are needed by a company to act through them. The type of relationship that directors should hold with the company is something similar to the relationship of normal principal and agent relationship. The directors are in the position of managing partners and they are appointed by the shareholders.
Directors in someway are not only the agents of the company. They hold a relationship beyond that with the company. Basically they are trustees of the company. But not to an extent of a true trustee. The rules and responsibilities that are applied to an ordinary trustee are not always applied to a director. But to a certain extent it can be said that directors are trustees of a company.
Directors are appointed by the shareholders to work in their interest. They hold a certain set of duties towards the company and the shareholders.
How the directors are appointed?
The way in which the directors are appointed can differ from company to company. When the company gets started the directors are appointed by being named in the articles of association. For a person to be appointed to be as a director there are some qualifications that he or she should comply with. For example the person can’t be under 18 years of age. And it can’t be a person who is insolvent. And the appointed person can’t be a mental disorder. Since all the requirements are not applicable to the question all of them will not be mentioned. Basically if the articles of the company doesn’t include a specific person as a director he will be appointed by the ordinary resolution.
Duties of a director
The prime duty of a director is to work in the interest of the company and its shareholders. The duties of directors, in the way in which is recognized by the English law fall into three main categories.
Duty of care and skill Fiduciary duties of directors Statutory duties
In common law directors are required to show the reasonable care and skill only in the performance of their business activities. Directors are asked to pay serious attention on the issues of the company.
When it comes to the fiduciary duties of a director they are required to act in good faith towards the company and work well with the shareholders. And this faith should not be used to take in appropriate use of the shareholders or any other stakeholder group of the company. And they should be ethical in making decisions related to profits. For example they should not keep any secret profit for themselves.
And in the new act also there are many duties mentioned that directors should perform. For example it specifically mentions the importance of complying with the act and the company’s articles of association. And they are asked to avoid any recklessness in taking on with activities and they are asked to use fair and reasonable diligence in the management of their company’s affairs, and to act honestly.
There are many other duties mentioned in the new act such as use of information and advising, to make disclosure of interests, to disclose share dealings, to approve remuneration to other directors only as provided etc.
Powers of directors
Since it was felt that commenting on the owners of the directors as a whole is important to relate it to the case the major powers the directors hold will be discussed in this section of the report.
According to the new act the people who have interest in controlling a company can be included in the meaning of directors. In expressed words if there is a shareholder who is really concerned and has the interest of controlling the company will, himself, be treated as a director even if he is appointed only his nominee to the board of directors. The new act contains a special provision that ensures the power of the management on the board, as is normal practice under the company articles, but it at the same time enables that power to be controlled or reallocated by the articles.
According to this new provision the business affairs of a company can be managed and supervised under the direction of the board of the company. The board of the company will have all the powers necessary for managing the activities which are carried out by the company. However according to the new act the powers of the directors is limited in two ways. First when it comes to the actions of the directors they cannot do anything which the company cannot do under its memorandum of association. And any purported act by the directors here will be void.
The other limitation is when acting within the powers of the company; the directors are limited to the powers which the company has delegated to them. If they act outside the powers of their own, this will ratify their acts in the general meeting. If anyhow the actions of the directors in excess of their authority are not ratified by the company, they may be liable to those with whom they deal on the footing that they are taken to warrant their authority.