Management of a company.

Management of a company.

The core activities of management in a company include planning, organizing, staffing, leading or directing, and controlling the organization's activities. This process involves the deployment and manipulation of various resources, including human, financial, technological, and natural resources. Most companies delegate management powers through their articles of association. In the context of company law, Table A, article 71 of the Company Act specifies that "the business of a company shall be managed by the directors."

Directors:

From a legal perspective, a company is a legal entity with no physical existence. It operates through human agency, specifically its directors. Directors are individuals to whom the duty of managing the general affairs of the company is delegated. They act as agents, executing the company's functions on its behalf.

In legal terms, directors are often defined as individuals occupying the position of director, regardless of the title they may hold. The critical factor is whether a person performs the functions of a director. As stated in Re Forest of Dean Mining Company (1878) 10 ChD 450, "It does not much matter what you call them so long as you understand what their real position is. "

Definition and Qualifications of Directors:

The term "director" is broadly defined in Section 2 of Cap.212, encompassing any person occupying the position of director by any name. The key consideration is the nature of the office and its duties, irrespective of the title.

Qualifications for directors include being of the age of majority, sound mind, and compliance with relevant laws. The Companies Act 2002, for instance, stipulates that a person must be at least 21 years old and not older than 70 at the time of appointment. Additionally, directors must not be disqualified by any applicable law, court order, or bankruptcy status. Some companies may require directors to hold a specified share qualification.

Number of Directors:

Every company must have a minimum of two directors, as per Section 186.

Consent to Act as Director:

Before being appointed as a director, an individual must sign and deliver to the registrar a written consent to act as a director. This consent must be registered with the company.

Position of Directors:

Defining the legal position of directors in a company has been a challenging task, often resulting in varied descriptions such as agents, trustees, and managing partners.

Directors as Agents:

Directors act as representatives of the shareholders, being elected to carry out the company's functions. In legal terms, directors are considered agents of the company, and the relationship between them and the company is governed by the general principles of the law of principal and agent. However, directors are not merely agents; they possess independent powers in certain matters, and they may exercise these powers without consulting the shareholders, as specified in the company's articles.

Directors as Trustees:

Directors are also treated as trustees of the company's money, property, and the powers entrusted to them. In the case of Great Eastern Rly Co. v. Turner (1872) LR 8 Ch.App.149, Lord Selborne noted that 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." Directors act as trustees in the sense that they are obligated to account for all company money and property under their control. They must refund any improperly paid or transferred funds to the company.

Moreover, directors act as trustees of the powers entrusted to them, requiring them to exercise these powers honestly and in the best interests of the company and shareholders, rather than in their own personal interest. For instance, in Percival v. Wright, directors were given the power to issue unissued shares, but they used this power to issue shares for their benefit, leading to a ruling that deemed the allotment invalid and void.

Despite being referred to as trustees, directors are not trustees in the conventional sense because they do not hold ownership of the company's property. Their status as trustees is limited to specific obligations and powers, acknowledging their fiduciary duties to the company.

Powers of the Board of Directors:

The Board of Directors holds the authority to exercise all powers and perform acts and tasks that the company is authorized to undertake. However, in cases where the law necessitates authorization by members in a general meeting, directors can only proceed after receiving such authorization.

Duties of Company Directors:

Financial Responsibility and Fiduciary Duties:

Directors, having been elected to office, are entrusted with the responsibility for managing the company's finances and assets. Despite having considerable autonomy over corporate property usage, directors are subject to fiduciary duties as trustees.

Limited Duties to the Company:

Directors owe their duties exclusively to the company and not to individual shareholders. Shareholders have the freedom to choose their directors, and the law generally does not interfere if shareholders appoint individuals with varying levels of competence.

Duties as Outlined in the Companies Act:

The Companies Act outlines specific duties for directors, including:

Duty to act in good faith and the best interest of the company (Section 182):

Directors must act honestly, in good faith, and in the best interests of the company.

Consideration of the interests of employees (Section 183):

Directors must consider the interests of the company's employees.

Duty to exercise powers for proper purposes (Section 184):

Directors must exercise their powers for the specific purposes for which they were granted.

Duty of care, skill, and diligence (Section 185):

Directors must act with care, skill, and diligence, comparable to a reasonable person in the same position.

Directors' Duty of Care, Skill, and Diligence:

Directors are expected to exercise care, skill, and diligence in line with their knowledge, experience, and any special expertise they possess. The duty is measured against the standard of a reasonable person in a similar position.

Directors are not required to exhibit greater skill than reasonably expected, encouraging individuals with varying levels of experience to take up directorship

Directors are not obligated to give continuous attention to company affairs, and their duties are intermittent.

Directors may trust other officials to perform certain duties but are not absolved from the duty of reasonable supervision.

Appointment of Company Directors:

Directors are appointed by shareholders at the annual general meeting, and upon appointment, they must sign and deliver written consent to act as directors for registration at the Companies Registry. The scope of directors' powers and duties is specified in the company's articles, subject to the Companies Act and limitations imposed by shareholders' resolutions.

Directors' Liability:

Directors may face various liabilities, including Fraudulent trading (s.383), Wrongful trading (s.384 CA), Disqualification order (s. 197), Criminal liability (s.314 Penal Code).