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Company Law Lecture Notes - Management
Company Law Lecture Notes - Management
DIRECTORS
In Ferguson vs. Wilson (1866) LR 2 ch. 77 Carris LJ observed the company itself
cannot act in its own 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.
In Aberdeen Rly company vs. Blaike Bros (1854) Lord Cranworth LC said, The
directors are a body to whom is delegated the duty of managing the general affairs of
the company. A corporate body can act by agents and it is of course the duty of those
agents to act as best to promote the interests of the corporation whose affairs they are
conducting.
Directors are thus persons in charge of the management of the affairs of a company
and are collectively called board of directors.
Jurisdiction of the board of directors
CAP 486 and articles give the power to manage the company to the board of directors.
In Isle of Wight Railway Co. vs. Tahourdin (1884) Collins M.R said directors have great
powers and the court generally refuses to interfere with their management of the
company affairs if they keep within those powers. Shareholders may complain about
conduct of the directors but while the directors keep within those powers conferred upon
them by the company constitution to manage the company, the courts cannot allow the
members to interfere with the jurisdiction of the directors to manage the company. All
that the court can say to the members is if you want to interfere in the management of
the company affairs, convene a general meeting and alter the companys constitution by
passing a resolution obliging the directors to act the way you want.
Members however have a right to intervene and take a way such management in the
following circumstances: a) Where directors are improperly using the name of the company.
b) Where the board of directors is unable to function due to some reason.
c) Where the directors have acted ultra vires the powers granted to them or to the
company itself.
Meaning of director
A director is any person occupying the position of director. One is a director because of
the position of the office and its duties.
In Re. Forest of Dean Mining Co. (1878) Jessel M.R. 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 really commercial men managing a trading concern for the benefit of
themselves and shareholders in it.
In R vs. Camps (1962) Judge of the court of appeal of Eastern Africa, Sinclare P,
affirmed that a person occupying the position of a director though not duly appointed is
still held a director.
Appointment of directors
There are several stages of appointment of the directors: a) The first directors of a company are appointed by the promoter of the
company, where promoters have not appointed the directors subscribers to the
memorandum will become and are regarded the first directors.
b) Subsequent appointment are appointed when the company already exists.
The company will make these appointments in the following circumstances: a) To replace directors who have retired on rotation or otherwise.
b) To replace directors who have been removed from office.
c) To replace retired directors.
d) To replace deceased directors.
Casual vacancies
These are vacancies occurring in the ranks of directors any time before the next annual
general meeting by death or registration of a director. Casual vacancies are filled by
appointment made by the existing directors.
Alternative directors
These are directors appointed temporarily to represent the director during his absence
or inability in the board of director.
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Managing director
Guidelines for appointment of the managing director are given in the articles of
association.
Qualification of directors
The Act does not require a director to hold shares, thus one can be a director unless
articles provide otherwise. Article 77 table A provides that the share qualification for
directors may be fixed by the company in a general meeting and unless fixed no
qualification shares shall be required. If the articles of a company contain a provision
that the qualification of a director shall be holding a specified number of shares, section
183 provides that;
(i) Each director must acquire and retain such qualification shares within two months
after appointment.
(ii) Share warrant to bearer may not count as qualification shares.
(iii) If shares are not acquired within two months one ceases to be director.
(iv) One cannot be re-appointed unless he has obtained his qualification shares.
(v) A fine of one hundred per day will accrue for the period in office without qualification
shares.
Age of directors
Every director must retire on or shortly after the seventieth birthday, but he can continue
if allowed at a general meeting and after a special notice has been given.
The minimum age for appointment is twenty-one years. The limits do not apply to
private companies unless they are subsidiaries of public companies.
Bankruptcy
Bankruptcy disqualifies one from holding the office of a director.
Effects of disqualification
The acts of a director or manager shall be valid not withstanding any defect that may
afterwards, be discovered in his appointment or qualification. Acts done after disclosure
by the company will not be binding on the company.
Disqualification of directors
The following are grounds for disqualification of a director: 1. Failure to take up prescribed share within two months section 183.
2. When one becomes bankrupt or makes any arrangement or composition with
his creditors generally (sec.188).
3. If one is prohibited from being a director for any reason under section 189.
4. If one becomes of unsound mind.
5. Resigning by notice in writing to the company.
6.
Absence without permission for more than six months from meetings of
directors.
Vacation or removal of a director
A director can leave office either by
(a) Vacation
This arises when a director voluntarily quits office by whatever reason. A director is
liable for all acts committed while in office but not thereafter.
(b) Removal from office
These are situations when one is forced to quit the position of a director. A director can
be forced to quite by:
a) Operation of law
Instances where a director is removed by operation of law.
(i)
(ii)
b) The company
The company may remove a director by an ordinary resolution after special notice is
given. A removed director may claim compensation for the loss of office.
Position of directors
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(ii)
The disclosure should be made at the time the contract in question comes before the
board of directors for discussion, section 200(1).
Legal effect of non-disclosure of interest by directors.
There are two categories of consequences.
a) Statutory consequences
Section 200 (4) such directors shall be liable to a fine not exceeding two thousand
shillings.
b) Common law consequences
At common law the contract itself becomes voidable at the instance of the company.
The director in question who also made secret profits on the contract must refund the
same to the company.
Duties of directors
The following are some of the duties of directors: 1. To exercise their powers honestly for the benefit of the company as a whole.
2.
Not to delegate his functions except to the extent authorized by the Act or
Qualifications the directors must take all reasonable steps to ensure that the
secretary is a person who appears to them to have the requisite knowledge and
experience. He must be one who: (i)
(iv)
DUTIES
The secretary duties include: a) Ensuring that the companys documentation is in order, that the requisite
returns are made to the companies registry, and that the companys register are
maintained,
b) Taking minutes of meetings,
c) Sending notices to members and,
d) Counter signing documents.