Powers of directors of a company 2023 (+ duties & liabilities)

This post covers the powers of directors in company law.

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.

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 their powers in a 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 the 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.

Duties of the Directors of the company

The law has set some of the duties to be carried out by the directors

Duties of directors are usually considered under the following broad terms namely;

  1. Duty of care and skill
  2. Duty to act in good faith and in the best interest of the Company
  3. Duty to disclose an interest

Directors’ Duty of care and skills

The company law requires the directors to act with due care.

They are required to exercise care, skills, diligence, and knowledge the same as a reasonable man with the experience put in their position could have used.

He is also expected to use any special knowledge or experience that any director of his type is expected to have.

But he does not owe his company a duty to take all possible care or to act with the best car. He needs not to show in his performance of his duties a greater degree of skills than may reasonably be expected from a person of his knowledge and experience.

The duty does not prevent a director from relying on the advice or work of others, but the final judgment must be his responsibility.

At all times directors should know at least what is happening in a company

Ignorance is not a defense and a director may be jointly or severally liable for any mistakes made.

Directors’ Duty to act in good faith and in the best interest of the company

Directors have a duty to act bonafide and in good faith in the interest of the Company

The powers of directors should be directed toward performing duties that are honestly believed to be in the best interests of the Company.

Directors are expected to promote the Companies’ success.

The clear meaning of the term interest of the company includes that the directors must have regard for the interest of the present and future members of the company.

They must view against the interest of the company if the act is aimed at benefiting their own desires or rather the interest of a third party instead of that of a company.

In the case of BRITISH MIDLAND TOOLS VS MIDLAND INTERNATIONAL TRADING   where the two directors were about to resign and join a director who had previously resigned and set up a rival company were found to be in breach of their duty to act bonafide for the benefit of the company.

They knew that the proposed new company was approaching the existing employees to entice them to join their rival company (it had in fact already poached twelve employees) and they did nothing to discourage the movement.

Director’s Duty to disclose an interest

Company law wants a director to avoid a situation in which could have a direct or indirect interest that conflicts with the interest of the co.

They should ensure that the interest of the company always prevails

They are required to have regard also to the interest of the employees of the company and not only of the members of the company

In order to act in good faith and in the best interest of the company a director should avoid personal Profits when discharging his duties and must disclose any interests whatsoever in any company transactions.

Other duties of the directors include;

Director’s Duty to the disclosure of age

A director has a duty to disclose his true age under S. 195 of the Companies Act before he is appointed to such a post

Director’s Contractual Duty

A director should remember his/her contractual duties under the employment contract as both an employee and a director.

Liabilities of the Directors in company law

Company 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 Documents, 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.

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