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
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. It is therefore not surprising to find that the articles of every registered company have provisions regarding the delegation of powers pertaining to the company’s management.
In Aberdeen Rly vs. Blake Bros. the court ruled as follows:
“The directors are a body to whom is delegated the duty of managing the general affairs of the company. A body corporate can only act by agents, and is of course the duty of those agents to act as best to promote the interests of the corporation whose affairs they are conducting”.
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
Section 3 of the Companies Act 2015 defines a director as follows:
“Director includes any person occupying the position of director, by whatever name called”.
The important factor to determine whether a person is or is not a director is to refer to the nature of the office and its duties. 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.
A director may, therefore be defined as a person having control over the direction, conduct, management of the affairs of a company. Again, any person in accordance with whose directions or instructions, the Board of Directors of a company is accustomed to act is deemed to be a director. But such a person shall be deemed to be a director if the Board acts on advice given by him in a professional capacity.
Numbers of Directors
Every private company must have at least one director and for a public company the minimum is two. There is no statutory maximum but the articles usually impose a limit. At least one director must be a natural person, not a body corporate.
A company may be a director. In that case the director company sends an individual to attend board meetings as its representative.
A person might seek to avoid the legal responsibilities of being a director by avoiding appointment as such but using his power, say as a major shareholder, to manipulate the acknowledged board of directors.
Company law seeks to prevent this abuse by extending several statutory rules to shadow directors. Shadow directors are directors for legal purposes if the board of directors is accustomed to act in accordance with their directions and instructions.
A director may, if the articles permit, appoint an alternate director to attend and vote for them at board meetings which they are unable to attend. Such an alternate may be another director, in which case they have the vote of the absentee as well as their own.
An executive director is a director who performs a specific role in a company under a service contract which requires a regular, possibly daily, involvement in management.
A director may also be an employee of his company. Since the company is also his employer there is a potential conflict of interest which in principle a director is required to avoid.
To allow an individual to be both a director and employee the articles usually make express provision for it, but prohibit the director from voting at a board meeting on the terms of their own employment.
Directors who have additional management duties as employees may be distinguished by special titles, such as ‘Finance Director’. However (except in the case of a managing director) any such title does not affect their personal legal position. They have two distinct positions as:
A member of the board of directors; and
A manager with management responsibilities as an employee
A non-executive director does not have a function to perform in a company’s management but is involved in its governance.
In listed companies, corporate governance codes state that boards of directors are more likely to be fully effective if they comprise both executive directors and strong, independent non-executive directors. \
The main tasks of the NEDs are as follows:
Contribute an independent view to the board’s deliberations
Help the board provide the company with effective leadership
Ensure the continuing effectiveness of the executive directors and management
Ensure high standards of financial probity on the part of the company
Non-executive and shadow directors are subject to the same duties as executive directors.
The managing director
A managing director is one of the directors of the company appointed to carry out overall day-to- day management functions.
If the articles provide for it the board may appoint one or more directors to be managing directors. A managing director (‘MD’) does have a special position and has wider apparent powers than any director who is not appointed an MD.
First Directors of a company
The application for registration delivered to the Registrar to form a company includes particulars of the first directors, with their consents. On the formation of the company those persons become the first directors.
Appointment of subsequent directors
Once a company has been formed further directors can be appointed, either to replace existing directors or as additional directors.
Appointment of further directors is carried out as the articles provide. Most company articles allow for the appointment of directors:
By ordinary resolution of the shareholders, and By a decision of the directors.
However the articles do not have to follow these provisions and may impose different methods on the company.
The board of directors
Companies are run by the directors collectively, in a board of directors.
The board of directors is the elected representative of the shareholders acting collectively in the management of a company’s affairs.
One of the basic principles of company law is that the powers which are delegated to the directors under the articles are given to them as a collective body.
The board meeting is the proper place for the exercise of the powers, unless they have been validly passed on, or ‘sub-delegated’, to committees or individual directors
Qualifications of directors
a) Minimum age for director: A person who has not reached eighteen years of age may not be appointed to be a director of a company. An appointment made in contravention of subsection is void.
b) Age limit: under the 2015 Companies Act there is no age limit to be a company director.
Disqualification of directors
a) On convicting a person of an offence relating to the promotion, formation, management, liquidation or administration of a company, the court may make a disqualification order against the person.
b) Disqualification for fraud or breach of duty committed while company in liquidation or under administration
c) Disqualification on conviction of offence involving failure to lodge returns or other documents with Registrar
d) Undischarged bankrupts must not act as directors/ Bankrupt.
e) Insanity: if a registered medical practitioner, who is treating that person, gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months;
f) Resignation: Notification is received by the company from the director that the director is resigning from office, and such resignation has taken effect in accordance with its terms.
g) A person if declared bankrupt or enters into an arrangement with his creditors to compromise his debts.
N.B. When a person being indebted to others, proposes an arrangement with those creditors, this constitutes an act of bankruptcy under the Insolvency Act, and is one of the grounds upon which a petition for bankruptcy may be filed against him.
Acting as a director whilst disqualified (Sec 228)
A person who, while subject to a disqualification order or disqualification undertaking, contravenes the order or undertaking commits an offence and on conviction liable to a fine not exceeding one million shillings or to imprisonment for a term not exceeding five years, or to both.