Qualifications, disqualifications and position of directors of the company


Today you are going to learn about the qualifications of directors of a company.

This post will cover;

Who is a company directors

What is a Board of directors?

A minimum number of directors

Qualification of directors

Position of Directors

Let’s get started

Who is a company directors

In company law, a director may be defined as a person having control over the direction, conduct, management, or superintendence of the affairs of a company.

Generally, the company from a juristic point of view is a legal/artificial person;

It has no physical existence.

As such it cannot act by itself.

It can only do its work through human beings called directors.

Cairns LJ in Furguson v Wilson[1]observed:

“The company itself cannot act in its person, for it has no person; it can only act through directors and the case is, as regards those directors, merely the ordinary case of principal and agent”.
Lord Cranworth L.C. observed in Aberdeen Rly Co. v. Blaikie Bros.[2];

“The directors are a body to whom is delegated the duty of managing the general affairs of the company. A corporate body can only act by agents, and it is, of course, the duty of those agents so to act as best to promote the interests of the corporation whose affairs they are conducting”.

Section 2(1) of Cap.212 defines a director to include any person occupying the position of director by whatever name called.

The important factor to determine whether a person is or is not a director is to refer to the nature of the office and its duties.  It does not matter by whatever name he/she is called.  If he/she performs the functions of a director, he would be termed a director in the eyes of the law even though he may be termed differently.

In Re forest of Dean Mining Company[3]Jessel MR said

“It does not much matter what you call them so long as you understand what their real position is, which is that they are commercial men managing a trading concern for the benefit of themselves and shareholders in it”.

A director may generally be defined as a person having control over the direction, conduct, management, or superintendence of the affairs of a company.

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What is a Board of directors?The

Board of directors refers to the group of individuals who are in charge of the management of the affairs of the company collectively. Every company must have a board of directors which consists of a chairman, secretary, and members.

The importance of the board of directors as per Neville J. is that they are the brains of the company: “The Board of Directors is the brain and the only brain of the company which is the body and the company can and does act only through them”

A number of directors:

Every public company must have at least two directors [s.140 (1) & (2)][4].

Qualifications of directors of Companies

For a person to be appointed a director he must have the following qualifications.

  1. Must be of the age of majority according to the law to which he is subject.
  2. had not attained the age of twenty-one or he has attained the age of seventy”. Section 194(1) of the Companies Act 2002 provides: “subject to the provisions of this section, no person shall be capable of being appointed a director of a company which is subject to this section if at the time of appointment he
  3. Must be of sound mind
  4. Must not be disqualified by any law to which he/she is subject. A person can be disqualified by law to be a director when he/she is declared bankrupt.
  5. Must not be disqualified by an order of the court [s.213 & 269(4)].
  6. If the articles so require, the director must have share qualifications.  In such cases, a person cannot be appointed as a director unless he acquires a certain minimum number of shares in a company (share qualification).
  7. Such qualification shares may be acquired within two months after his appointment or such a shorter time as may be fixed by the articles [s.142(1) of Cap.212].
  8. A person shall not be capable of being appointed director unless he signs and delivers to the registrar for registration a consent in writing to act as a director [s.141(1)].
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Disqualifications of directors

As per the company law, the following persons are disqualified from been appointed as a director:

  1. Unsound mind
  2. An undischarged insolvent
  3. A person who is convicted by the court
  4. Who has applied for being adjudged insolvent
  5. Not paid for the call on shares
  6. Persons who are already directors in a maximum number of companies as per the provisions of the Act or
  7. Any other person who has been disqualified by the court for any other reason

Position of Directors of companies

It has been very difficult to pinpoint the exact legal position of the directors of a company.

In different instances, company directors have been described by various names; sometimes as agents, as trustees, and sometimes as managing partners.

Directors as agents:

A company is an artificial person acts through directors who are elected representatives of the shareholders.  They are, in the eyes of the law, agents of the company for which they act, and the general principles of the law of principal and agent regulate in most respects, the relationship between the company and its directors.

It cannot, however, be said that directors are nothing more than agents of a company.  They have in certain matters independent powers.  They are not bound to consult the shareholders in all matters.  Some powers may, according to the articles, be exercised by the directors.

Directors as Trustees

Here the directors are treated as trustees of the company’s money and property; and of the powers entrusted to them.

In Great Eastern Rly Co. v. Turner[5], Lord Selborne observed: “The directors are mere trustees or agents of the company – trustees of the company’s money and property – agents in the transactions which they enter into on behalf of the company”…

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Directors are trustees of the company’s money and property in the sense that they must account for all the company’s money and property over which they exercise control.  They have also to refund to the company any of its money or property which they have improperly paid away or transferred[6]

Directors are trustees of the power entrusted to them in the sense that they must exercise their powers honestly and in the interest of the company and shareholders and not in their own interest.

In Percival v. Wright[7], the directors of a company had the power to issue the unissued shares of the company.  The company was in no need of further capital but the directors made a fresh issue for themselves and their supporters to maintain control of the company. It was held that the allotment was invalid and void.

Directors are, however, not trustees in the real sense of the word because they are not vested with the ownership of the company’s property.  It is only as regards some of their obligations to the company and certain powers that they are regarded as trustees of the company.

The true position is that directors are in a fiduciary relationship

Jessel MR in Forest of Dean Coal Mining Co., Re[8]observed:

“Directors have sometimes been called as trustee or commercial trustees and sometimes they have been called managing partners; it does not matter much what you call them so long as you understand what their real position is; which is that they are commercial men managing a trade concern for the benefit of themselves and of all the shareholders in it. They stand in a fiduciary position towards the company in respect of their powers and capital under control”.

Read next: powers and liability of directors

References

[1] (1866) LR 2 Ch. App.77

[2] (1854) 1 Macq 461

[3] (1878) 10 chD 450

[4] The Companies Act, 2002, Tanzania

[5] (1872) LR 8 Ch. App.149

[6] [Cook v. Deeks (1916) AC 554] [7] (1920) 1 Ch.77

[8] (1878) 10 Ch.D 450

Isack Kimaro

Editor-in-chief and founder of sherianajamii.com. Holder of Bachelor of Laws (LL.B) from Mzumbe University and Post Graduate Diploma in Legal Practice from the Law school of Tanzania. Lawyer by profession and blogger by passion.

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