Directors Defination

MANAGEMENT OF COMPANIES

Although all the shareholders have equal rights in the company it is obvious that they cannot together participate in its management except where there are a few (two or three) shareholders. They are, therefore, obliged to entrust the management to one of their numbers or a few as necessity requires. It is not every shareholder who is competent to manage a company.  As regards partnerships management is usually the preserve of active partners who are personally liable for the debts of the partnership.  For their part limited liability companies are frequently managed by administrators.

The organs of administration are adorned with all the powers necessary for the achievement of the objects of the company and to represent the company at law. Although the law gives the organs of management enormous power for the management of the company these powers may be curtailed by the Arts, of Ass. While these restrictions of powers may be valid among shareholders they do not produce any effects vis-a-vis third parties even where they have been published.  In other words, these restrictions cannot be set up by the company to oppose the interests of third parties

In addition the Arts of Ass may delegate all the powers of management to one or several persons acting alone or jointly. Note that the clause delegating powers of management may be in yoked after 30 days following its publication in the official gazette except the company can establish that the third party had knowledge of such delegation of powers of management.

The company is linked to third parties through the acts of its representatives (managers) even where the acts undertaken by management go beyond the objects of the company, except the company can prove that the third party knew or ought to have known that the act was ultravires the company. Note that mere publication of the Art Ass does not constitute proof of such knowledge.

When an organ of the company fails to perform the functions entrusted to it by law or to act in the interest of the company a shareholder may after unsuccessful attempts to get it perform its duties petition the Court of First Instance to designate (appoint) an ad-hoc agent.        

THE ORGANISATION AND FUNCTIONING OF PUBLIC LIMITED COMPANIES

The shareholders are the owners of the company.  They can affect the way the business is run through their power to elect directors and amend the articles of association. They do not, however have the power to make management decisions. That power is given to the directors by the articles of association.

The functioning of the public limited company is the prerogative of three organs:

  • The board of directors
  • The general meeting of shareholders The committee of auditors.
Board of Directors

The public limited company is administered by a board of directors comprising not less than three (3) and not more than twelve (12) members. Members of the board of directors may be natural persons or third parties.

 APPOINTMENT OF DIRECTORS

The first directors may be appointed by the articles of association or by the constituent general meeting. During the existence of the company, the directors shall be appointed by the ordinary general meeting.

The term of office of directors shall not exceed six years but they are eligible for re-election.

Note that following the appointment of directors the company cannot execute a contract of employment with the directors. Should a contract of employment be concluded with a director the same shall automatically come to an end the day the director assumes duty. This may be explained by the fact that directors are not considered in law to be employees of the company, but as the company’s agent. It is for this reason that a general meeting can at any time dismiss the directors.

Vacancies

In the event of any vacancy on the board the remaining directors and auditors are given the powers to appoint an interim director to fill the vacancy. The appointment by the board of directors and auditors of the interim director shall be submitted to the next annual meeting for ratification. Should the annual meeting refuse to ratify the appointment the decision or acts of the incomplete board shall nevertheless remain valid.

Powers and Duties of Board of Directors

The board is adorned with all the powers necessary for the attainment of the objects of the company as well as its representation at law. However, the articles of association may restrict the powers of the board. While these restrictions may be valid between shareholders they cannot be set up by the corporation against third parties even if they were published.

Directors do not have the powers to bind the company individually as it’s the case with partnerships having several managers. They can only bind the company acting collectively i.e., to say there is collective management as far as the public limited company is concerned. Decisions are taken by simple majority of those present as long as the majority of board members are personally present.

The company is linked to third parties through the acts of its directors even where the acts undertaken by the directors go beyond the objects of the company except the company can establish that the third party knew or ought to have known that the act was ultra vires the company. The publication of the articles of association does not constitute proof of such knowledge.

Although the management of the company has been entrusted to the board of directors, in practice, the board generally serves as adviser to the management rather than as business decision makers. In the result the powers of management is usually delegated to a managing director or general manager. Even in the event where the powers of management have been delegated the board is still required to formulate the general policy of the company as well as supervise its execution.

Remuneration

The annual meeting may freely grant the directors, as remuneration for their activities a fixed annual duty allowance. The board of directors may also grant its member special remuneration for the mission and tasks entrusted to them or authorizes the reimbursement of travel and subsistence costs and expenses incurred in the interest of the company.

Appointment of Directors

They are appointed by the shareholders at the Annual Meeting or at Special Meetings if such a meeting is called.

If any director is appointed by the Board or the management of the company, his or her appointment must be ratified at the next annual meeting.

QUALIFICATION, DISQUALIFICATION AND REMOVAL OF DIRECTORS

CIVIL AND CRIMINAL LIABILITY OF DIRECTORS

As far as civil liability is concerned members of the board are jointly and severally liable to the company for any wrongs (tort) committed by them in the execution of their functions even if they had partitioned their responsibilities. Their liability is appreciated within the context of the law of agency

Nevertheless, board members may be exonerated from liability for wrong committed in the exercise of their functions if they can establish that the fault in question cannot be attributed to them, provided they had disclosed this wrong doing to the general meeting as soon as they became aware of the same.

Furthermore, in the event of delegation of powers approved by a general meeting and duly published, the managers who are not part of the unauthorized delegation of powers are liable on the general policies or the failure to supervise its execution.

The right of action against directors belongs to the general meeting. The general meeting shall (may) designate one or several agents charged with instituting proceedings in the company’s interest against the directors.

Similarly, shareholders representing 1/10 of the share capital and who did not vote during the discharge of the directors may appoint an agent to institute proceedings in the company’s interest against the directors. Note that the withdrawal of one or more of the said shareholders in the course of the action shall have no effect on the continuation of the action.  In the event where the action succeeds the shareholders shall receive a refund of the expenses of the action; if it fails the shareholders will bear the expenses of the action.

As regards criminal liability, the managing director or general manager shall be jointly and severally liable to the company or third parties either for offences against laws and regulations concerning companies or for violation of the provisions of the articles of association. Note that no decision of the general meeting may extinguish an action against the directors or managing director or general manager for an offence committed in the performance of their duties.

Dismissal of Directors

Shareholders may dismiss a director during the annual meeting for a legitimate cause. For instance, a director who has failed to or is unable to attend and participate in directors meetings or who has acted contrary to the interest of the company can be removed for a legitimate caused. Before being removed for just cause, the director must be given notice and a hearing. If a director is removed without just cause he will be entitled to damages.

Note that if a director was appointed by the annual meeting, then the decision removing the director shall be taken by shareholders representing more than ½ of the share capital. On the other hand if the appointment is by the articles of association then a vote representing ¾ of the share capital shall be mandatory given that an amendment of the articles of association shall be required during a special  meeting

POWERS AND DUTIES OF DIRECTORS

CONTRACTS CONCLUDED BETWEEN THE COMPANY AND THE DIRECTOR

 Contracts prohibited between directors and the company

Directors are forbidden to contract whatsoever loans from the company or for the company to guarantee a loan on their behalf except the transaction for which the loan is meant is not part of the object of the company and provided it is submitted to normal conditions. Normal conditions mean conditions that are applied, for similar agreements not only by the company in question, but also by the other companies in the same sector of activity.

Contracts submitted to authorization and control

Directors cannot without the authorization of the general meeting carry out either for their own benefit or for the benefit of others any activity, which is similar to that of the company.

The same shall apply to agreements indirectly involving a director or in which he dealt with the company through a third party. The director shall be bound to inform the board of directors as soon as he is aware of an agreement subject to authorization. He shall not take part in the voting on the authorization applied for. Note that all such agreements i.e., those authorized by the board must be submitted for the approval of the ordinary general meeting.          

 REMUNERATION OR COMPANSATION FOR LOSS OF OFFICE

The company shall by ordinary resolution approve the remuneration of the directors and any benefit payable to the directors, including any compensation to a director for loss of employment or to a former director. The Board of Dirctors may determine the terms of any service contract with a managing director or other executive director. The directors may be paid all travelling, hotel and other expenses properly incurred by them in attending any meetings of the Board or in connection with the business of the company. Article 206

Decisions that may be approved by the Board of Directors instead of the meeting of shareholders

The Board of Directors may, instead of the meeting of shareholders of a company and where it is provided for by the Law, approve:

  • the payment of remuneration or the provision of other benefits by the company to a director;
  • the payment by the company to a director or former director of compensation for loss of office.

 

Any shareholder who considers that the payment was not fair to the company and who holds at least ten per cent (10%) of the company‟s voting share capital, may, within one month of knowledge of that payment request the Board to reconsider these payments or request the Board to call a meeting of shareholders to approve or reject the payment by way of ordinary resolution. When the payment is not approved, it shall constitute a debt payable by the directors to the company. Article 207

 LOANS TO DIRECTORS

A company may make a loan to a director but it must be  approved by the meeting of shareholders of the company in so far as its application concern of the Board of Directors.;

A loan which was granted which is not in compliance with the Articles of Association or is not  approved by the shareholders in meeting shall be cancelled shall be paid back .

 REGISTER OF DIRECTORS

The list of Directors shall be lodged the with Office of the Registrar General and if thereare  any changes  appointments ,resignations or terminations, the ORG must be informed.             

. DISCLOSURE OF  DIRECTORS’ INTERESTS IN CONTRACTS

A director of a company may have an interest in a transaction that company is interested in where:

  • It can be shown that he / she may benefit from it financially
  • has relationship with any other person concerned with the transaction;
  • is amember of the Board of Directors, an employee or attorney of the person concerned with the transaction or
  • that can be interested in it and that is other than:
    • a direct subsidiary company;
    • a subsidiary company;
    • a subsidiary of another subsidiary company;
  • is the parent, the child or the spouse of another party to the transaction and who may have financial interest in it;
  • is to some extent directly or indirectly interested in the transaction.

A director of a company shall, forthwith after becoming aware of the fact that he/she is interested in a transaction or proposed transaction with the company, cause to be entered in the interests register and disclose to the Board of Directors the company:

  • where the monetary value of the director‟s interest is able to be quantified, the nature and monetary value of that interest
  • where the monetary value of the director‟s interest cannot be quantified, the nature and extent of that interest.

A transaction entered into by the company in which a director of the company is interested may be avoided by the company at any time before the expiration of six (6) months after the transaction is disclosed to all the shareholders. A transaction shall not be avoided where the company receives fair value under it. The question as to whether a company receives a fair value under a transaction shall be determined on the basis of the information known to the company and to the interested director at the time the transaction is entered into.              

 THE TURQUAND’S RULE

No presumption of knowledge of articles of association.

A person is not affected by, or deemed to have notice or knowledge of the contents of articles of association of, or any other document relating to a company merely because:

 

  • the articles of association or that document is registered in a register kept by the Registrar General;
  • the articles of association or that document are available for inspection at an office of the company.

Article 35 of Law 7/2009.. relating to Companies

This stems from The Turquand Rule:

Royal British Bank v Turquand (1856) 6 E&B 327 is a UK company law case that held people transacting with companies are entitled to assume that internal company rules are complied with, even if they are not. This “indoor management rule” or the “Rule in Turquand’s Case” is applicable in most of the common law world. It originally mitigated the harshness of the constructive notice doctrine, and in the UK it is now supplemented by the Companies Act 2006 sections 39-41.

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