Powers and liability of directors of a company

Generally, a company has no physical existence, it is just an artificial legal person, and hence it cannot manage its own affairs without having a natural person.

A Natural person is able to manage the affairs of the company and they are usually called directors. Directors are regarded as the organ of the company for whose action the company is to be held liable just as a natural person.

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The main law which governs company matters in Tanzania is Company Act No. 12 of 2002. (The law)

Powers of Directors

Directors of a company have powers necessary for managing, directing and supervising the management of the business and affairs of a company.

Directors are required to exercise those powers for the proper purpose, in good faith, and for the best interests of the company.

Control of Powers of Directors

Although The Companies Act vests powers to directors of a company, those powers are subject to controls by the same Act as follows.

Judicial Control

Here the court may appoint one or more competent inspectors to investigate the affairs of a company and to report thereon in such manner as the court directs.

This is to the effect that, when directors exercise his powers in the manner that affects the affairs of a company, upon the application of the members of a company, the court may appoint a competent inspector to investigate.

Through this, the law ensures that the powers of Directors are not abused.

Control by Members of the Company

The law controls the power of directors by allowing the members of the company to remove a director before his expiration of time in case of abuse of power or any other reasons.

The law is to the effect that a company may by ordinary resolution remove a director before the expiration of his period of office notwithstanding anything in its articles or in any agreement between it and him.

Control by the Registrar of Company

The law ensures the control of the power of the directors through the Registrar of the company.

The Registrar of a company has the power to call for information if he believes and has reasonable cause to do so.

In case the Registrar finds that the directors of the company abused his powers, the registrar has the power to report the matter to the court for further action.

Liabilities of the Directors

Further, the law provides for both civil and criminal liabilities to the directors of a company to control their powers.

Directors’ Criminal Liability

The criminal liability of Directors provided by the law includes the liability for failure to prepare and present proper accounts, liability for failure to deliver annual returns, etc. All liabilities attract fines and imprisonment.

Directors’ Civil Liability

The civil liability of Directors provided by the law includes Liability for misstatement in Offer Document, fraudulent trading, etc.

The law imposes civil liability on Directors to compensate the company, shareholders, creditors or third parties for losses incurred as a result of a breach of duty by the company or Director as an agent of the company.

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Final Remarks

A director of a Company must act within the power provided by the law (intra vires) during the management of a company’s affairs.

If a director exercises the powers vested to him contrary to the manner he is required to act, the law has the mechanisms to ensure control of his powers.

A director act as the brain of all affairs of the company, he must make sure that he acts in the best interest of the company.

Isack Kimaro
Isack Kimaro

Editor-in-chief and founder of sherianajamii.com. Holder of Bachelor of Laws (LL.B) and Post Graduate Diploma in Legal Practice. Lawyer by profession and blogger by passion