Who is a Director of a Company
A director is ordinarily someone appointed to manage a company's business and affairs. Every registered company must have at least one director. The Companies Register records who a company's directors are and key information about them.
Managing a company
According to section 66 of the Companies Act, a company's board is responsible for managing its business and affairs. Section 66 of the Companies Act states that a company's board manages its business and affairs. The board can make decisions and carry out tasks for the company. The Companies Act or the company's MoI may have exceptions to this rule.
The word 'manager' comes from the Latin word 'manus', which means 'hand'. A manager leads and instructs others. A director is important in managing and sits on a company's board of directors.
What are the Fiduciary duties of directors
A director has a fiduciary duty towards the company. ‘Fiduciary duty’ bears a meaning far beyond the corporate world.
It also pertains to life as such. The word ‘fiduciary’ comes from the Latin word ‘fidil’ which means faith. The word 'fidelity' in English means being faithful and loyal. A fiduciary duty involves acting in good faith, being loyal, and telling the truth.
Someone with a fiduciary duty must act in the other person's best interest and avoid any conflicts of interest. A director’s fiduciary duty is to act in the best interests of the company as a whole.
A director represents the company, not its employees or shareholders.
Directors must always act in good faith and in the company's best interests as part of their fiduciary duty. The obligations of a director with a fiduciary duty include the following:
- Directors cannot use corporate property, information, or opportunities for personal gain.
- Directors must have, or use, the ability to act or decide according to their own discretion or judgement;
- Directors should use their power for the purpose assigned to them ('proper purpose'). The Proper Purpose Rule says that directors must use their power for the company's benefit. If they use it for other reasons, they are not fulfilling their duties to the organization. They must act in good faith and make decisions that benefit the company.
- Board members and Directors must steer clear of any potential conflicts of interest;
- Directors have a duty not to misappropriate corporate opportunities;
- Directors cannot misuse their position or any information they have access to while acting as a director.
- Directors should not knowingly cause harm to the company or a subsidiary of the company;
- Directors must share important information with the board. This information should not be already known to the public or other directors, or confidential. If a company fails the solvency and liquidity test, it cannot take certain corporate actions. If a company fails the solvency and liquidity test, it cannot take certain corporate actions.
Frequently asked questions
Are director and CEO the same
The difference between a managing director and a chief executive officer (CEO) is subtle but crucial. The managing director handles daily operations, while the CEO leads the organization, sets the vision, and gives overall direction.
How can a director limit their liability
Companies can indemnify their directors for the consequences of their actions. Directors are typically covered by insurance for claims made against them by third parties. They are also protected for losses incurred by the company due to their decisions. In addition, they have coverage for liabilities to third parties resulting from their decisions. Directors are also covered for legal expenses.
The scope of an indemnity given to directors will however be subject to the restrictions in the Companies Act and the company’s MOI. In terms of section 78(2), a company cannot, however, adopt any internal remedy to relieve a director of any duty of liability, or negate, limit or restrict any legal consequences arising from an act or omission that constitutes wilful misconduct or wilful breach of trust on the part of the director, and any such action by a company is void. The prohibited indemnities include insurance against the following:
- any liability arising from:
- acting in the name of the company, signing anything on behalf of the company, purporting to bind the company, authorising the taking of any action by or on behalf of the company, despite knowing that the director lacked the authority to do so
- the acquiescing in the carrying on of the company’s business despite knowing that it was being conducted in a manner prohibited by section 22(1) of the Companies Act, being the prohibition against reckless trading
- being a party to an act or omission by the company despite knowing that the act or omission was calculated to defraud a creditor, employee or shareholder of the company, or had another fraudulent purpose
- wilful misconduct or wilful breach of trust, or
- any fine that may be imposed on the director of the company as a consequence of that director having been convicted of an offence.
A company cannot pay fines for a director who has been convicted of an offence. This is unless it was a strict liability conviction.
How is a director appointed
Incorporators are automatically the first directors of a company. Incorporators are the first directors of a company. Any other person who wants to become a director must be appointed or elected. They also need to give their consent to serve as a director to the company.
It must be noted that a director is not entitled to act as such until he/she provides the company with a written consent to serve as such.
The MOI determines the minimum number of directors for a private company, which is one. There is no maximum limit on the number of directors. There is no limit on the maximum number of directors.
In terms of the Companies Act, a company’s MOI may specifically:
- authorise one or more named persons to appoint and remove one or more directors
- provide for one or more persons to be ex officio directors of the company. A person can also be an ex officio director as a consequence of that person holding some office or designation. This type of director has all the functions, duties, liabilities and powers as any other director, except if the company’s MOI restricts or limits it, and
- provide for the appointment or election of one or more persons as alternate directors of the company.
Importantly, in the case of a profit company (other than a state-owned company), the MOI must provide for the election by shareholders of at least 50% of the directors and 50% of any alternate directors.
The appointment of directors of a company is prescribed in section 68 of the Companies Act. This part says that every company director must be chosen by the people who can vote in the election.
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