COMPANY MANAGEMENT

COMPANY OFFICERS
 INTRODUCTION
• Both the Companies Act and case law recognize
the general meeting and the Board of Directors
(the BOD) as the principal managerial organs of
the company and the Articles vest power in
both.

• Whereas the general meeting makes major

decisions the board of directors is responsible
for the day to day affairs of the company
 DIRECTORS
• A company, being an artificial person, cannot
manage its own affairs. It has no physical
existence. It has neither soul nor a body of its
own. As such it cannot act in its own person. It
can do so through some human agency.
 DIRECTORS
• The persons who are in charge of the
management of the affairs of the company are
termed as directors. They are collectively
known as Board of Directors.
• The directors are the brain of the company
and occupy a pivotal position in the structure
of the company. They are in fact the
mainspring of the company.
 MEANING OF DIRECTOR

• “Director includes any person occupying the

position of director, by whatever name called”.
• It does not matter by what name he is called. If he
performs the functions of a director he would be
termed a director in the eyes of the law even
though he may be named differently. A look at the
following names illuminates the point sufficiently
i.e. ‘Mutongoria’, ‘Munene’, ‘Jadoung’ or ‘Mudozi’
are some of the local names.
 NUMBERS OF DIRECTORS

• That every company (other than a private

company) shall have at least two directors,
and every private company shall have at least
one director.
 APPOINTMENT OF DIRECTORS

• First Directors of a company; The first directors of a

company are to be appointed by the subscribers of the
memo. If they do not appoint any, all the subscribers in the
Memorandum of Association become directors.
• Subsequent appointments of Directors; These are
appointments of directors when the company is already in
existence and the power to appoint is vested in eh co itself
and the co does so usually at the AGM.
• Casual Appointments; A casual vacancy is vacancy
occurring in the ranks of directors any time before the next
AGM either by death, resignation.
 APPOINTMENT OF DIRECTORS

• Appointment of alternate directors; An Alternate

director is one appointed by another director to
temporarily represent him during his absence or
inability in the Board of Directors.
• Appointment of managing director; A managing
director is usually part of the subsequent directors.
Much of the appointment is governed by company
practice because it is always a company’s affairs. The
Companies Act itself does not contain direct
provisions on the appointment of a managing director
 RESTRICTIONS ON APPOINTMENT
• Age Limit; attained the age of twenty-one
(21Years);
• He has attained the age of seventy (70
years).A director who attains the age of 70
while in office retires at the conclusion of the
next AGM.
RESTRICTIONS ON APPOINTMENT
• Undischarged Bankrupts; An insolvent person or a
person declared bankrupt by a Court of law must not
be directly or indirectly involved in company
management without leave of the Court.
• Fraudulent Persons (Disqualification by the courts)
Has been guilty of fraud or breach of duty to the
company.
 INDIVIDUAL VOTING;

• Directors are voted to office

individually. A resolution
moved in contravention of this
provision is void.
 DISQUALIFICATION OF DIRECTORS

• failure to obtain a share qualification

 
• Age limit if he attains the age of 70 whereby he
retires after the next AGM

• If declared bankrupt or enters into an arrangement

with his creditors to compromise his debts.

•  If he becomes of unsound mind

 DISQUALIFICATION OF DIRECTORS

• If the director is disqualified from holding office by a Court of law

by reason of any order made under the Act. (Restraining fraudulent
persons from managing companies)

• If he resigns from his office by notice in writing to the company; or

• If he absents himself without permission from directors meetings

held in over 6 months

• If removed from office by an ordinary resolution of members in a

General meeting.
VACATION OF OFFICE OR REMOVAL OF DIRECTORS

• Vacation; This is the voluntary quitting of office

by a director. It can happen during the director’s
tenure of office and for any reason such as ill
health, age, agreement with the board of
directors or even for special reasons.
• In contrast, removal means being forced to quit
the position of a director. He can be removed in
two broad ways
• By operation of law, and By the company itself
PROCEDURE FOR REMOVAL OF A DIRECTOR FROM
OFFICE;

• A special notice of the intended resolution to remove a

director from office must be given to the company.
• Upon receipt of the notice, the company must send a
copy thereof to the director concerned who is entitled
to make written representations not exceeding a
reasonable length as his defense.
• The director may request the company to notify the
members that he has made representations.
• The directors must summon an extra ordinary general
meeting to discuss the matter
PROCEDURE FOR REMOVAL OF A DIRECTOR FROM OFFICE;

• Notice of the meeting must indicate that the

director has made representations and copies
thereof must be sent to the members unless
received late by the company.
• The Court may hold the director liable for the
cost of the applications.
• The removal of a director from office takes
effect when the meeting by ordinary resolution
so resolves.
 DIRECTORS' REMUNERATION
 

• For technical reasons the directors are not

regarded as servants or employees of the
company of which they are directors. They
therefore have no right to be paid for their
services unless there is a provision for
payment in the articles.
LOANS AND OTHER PAYMENTS TO DIRECTORS

• Under the Companies Act, it is unlawful for a company to

make a loan to any person who is its director or director of
its holding company or extend a guarantee or provide
security in connection with a loan made to such a person
unless:
• The company is for the time being private.
• The lending company is the subsidiary and the holdings
company its director.
• The lending money or giving guarantee is part of the
ordinary business of the company and the same is given in
the ordinary course of that business.
LOANS AND OTHER PAYMENTS TO DIRECTORS

• The funds are necessary to meet expenditure incurred

or to be incurred by the director for purposes of the
company or enabling him to properly perform his
duties as an officer of the company.
• The payment must be approved at the general
meeting.
• A payment made without approval of the general
meeting renders the directors who authorized the
same jointly and severally liable to indemnify the
company from any loss arising.
 LEGAL POSITION OF DIRECTORS

• The Companies Act provides that a director

includes any person occupying the position of
director by whatever name called. This
definition fails to identify the director and his
relationship with the company.
• “Directors have been called trustees and
managing trustees. It does not matter what
you call them so long as you understand what
their true position is”
 DIRECTORS AS AGENTS

• A company, as an artificial person, acts

through directors who are elected
representatives of the shareholders of a
company. They are in the eyes of the law,
agents of the company for which they act, and
the general principles of the Law of Agency
regulates in most respects, the relationship
between the company and its directors.
 DIRECTORS AS AGENTS
• Directors not personally liable as agents:
Where directors of a company act on its
behalf, they are not personally liable for
contracts they make for the company provided
they act within the scoop of their authority
and do not make the contracts in their
personal name.
THE DIRECTORS ARE, HOWEVER LIABLE WHERE:-

• The contract is in their own name

• They use the company’s name incorrectly, e.g. by
omitting the or the words “limited” or “Private
Limited”
• The contract is signed in such a way that it is not
clear whether it is the principal (the company) or
agent who signed
• They exceed the powers given to other by the
Memorandum or the Articles of Association.
 DIRECTORS AS TRUSTEES

• It is argued that directors are trustees for certain

purposes though not ordinarily trustees.
• Unlike ordinary trustees who have legal title in
trust property, directors do not have it as it is
vested in the company.
• Unlike ordinary trustees whose obligation is to
preserve trust property for the beneficiary,
directors are bound to invest for the benefit of
the company.
 DIRECTORS AS FIDUCIARIES

• In the words of Lord Porter in Regal (Hastings) Ltd V

Gulliver:
• “Directors no doubt are not trustees but they occupy a
fiduciary position towards the company whose Board
they form. This is the true legal position of directors.
There is a fiduciary relationship between the directors
and the company, a relationship based on trust,
confidence and good faith which imposes upon the
directors various fiduciary or equitable duties often
referred to as duties of loyalty and good faith”
 DUTIES OR OBLIGATIONS OF DIRECTORS

• Director’s duties fall into 2 broad categories

namely.
• Duty of care and skill and diligence
• Duty of loyalty and good faith
 DUTY OF CARE AND SKILL AND DILIGENCE

• In Re: City Equitable Fire Insurance Co Ltd

Romer J observed that in discharging their
mandate, directors are required to
demonstrate some degree of care, skill and
diligence. The judge formulated the following
principles, rules or standards expected of a
director.
 PRINCIPLES, RULES OR STANDARDS EXPECTED OF A DIRECTOR.

• A director need not exhibit in the performance of his

duties a greater degree of skill than may be reasonably
expected from a person of his knowledge and experience.
• A director is not bound to give continuous attention to the
affairs of the company.
• In the absence of suspicion, a director is entitled to
assume that officers of the company performed their
duties honestly.
• This means that the director is entitled to rely on
information provided by trusted servants of the company.
DUTY OF LOYALTY AND GOOD FAITH (FIDUCIARY DUTIES)

• Duty to act bonafide

• Duty to exercise unfettered discretion
• Exercise powers for the proper purpose
• Duty to deal fairly as between different groups
of shareholders;
• Duty to avoid conflict of interest.
 DUTY TO AVOID CONFLICT OF INTEREST

• There are 3 potential situations of conflict of interest namely;

• Interest in contracts made by the company If a director has a
personal interest in a contract made by the company, equity
demands that he discloses the interest to the company, failing
which, the contract is voidable at the option of the company.
• Making secret profit; This phrase denotes any financial
advantage enjoyed by a fiduciary over and above his
remuneration.
• Conflicting or interlocking directorships. Such conflict of
interest arises if a director is actually involved in the affairs of
two or more competing companies
 EXERCISE OF POWERS

• Although directors may have very wide

powers they must nevertheless exercise these
powers only for the purpose for which they
were conferred if directors exercise a power,
for an improper purpose or exceed their
power, the court may intervene and set it
aside, directors must use their powers for the
proper purpose and not to further their own
interests.
 LIMITS TO DIRECTORS POWERS

• The powers of directors are limited in several ways:

• The directors powers are limited by the capacity of
the co. they cannot do anything which is not
authorized by the memo
• The directors are limited to the powers which have
been delegated to them.
• The powers are conferred on them collectively as a
board and not as individuals. (Individuals have no
authority).