What is Your Role as a Director of a Company ?

Director is a person occupying the position of director of the company by whatever name called, Executive Director, Non-Executive Director, Independent Director, Shadow Director, Chairman, President etc.

In addition to being Director of the company appointed by the shareholders, you can be contracted by the company for the employment as a Managing Director/Chief Executive Officer.

In such a situation you will be a Director on the Board appointed by the shareholders & Also an employee  by contract with the company. Thus you can play a dual role at the same time.

As a Director you ought to be aware of the civil & criminal liabilities under the Companies Act. Also you ought to know (at the least) certain provisions of the Companies Act & ignorance is no longer excuse for any Director.

Articles of Association is the document that as a director you must be familiar with because it provides the internal management mechanism of the company. This in effect contains a contract,

  • between the company and each shareholder
  • between the company and each director & company secretary
  • between & each other shareholder of the company

under which each party agrees to observe and perform the functions set out in the articles.

Basic Duties of a director

The prime duty of directors to act in good faith & in the interest of the company. What you believe to be in the interest of the company is subject to standard of care & bona fides. This can be explained in a situation where a nominee director of a subsidiary company ought to act in the best interests of that subsidiary company and not in the best interest of the parent company.

  • The golden rule for directors is to comply with the provisions of the companies Act and the Articles of Association of the company.
  • A director shall not act in any manner which is reckless or grossly negligent & shall exercise the degree of skill & care that may be reasonably expected of a person of his knowledge & experience. Directors’ standard of care can go extend disclosing in the interest of shares any interest in transaction if any.
  • Duty of director on serious loss of capital

In a situation where the company’s net assets are less than half of its stated capital As a director you have a responsibility in civil & criminal to take steps to prevent serious loss of capital by calling an extraordinary meeting advising shareholders nature, extent, causes of the losses & steps which are being taken to prevent.Because any given time the shareholders & the creditors may not know the actual financial situation of the company.

  • Duty of a director on insolvency

A director of a company who believes that the company is unable to settle its debts has to call for a board meeting to consider apply to court for winding up.Failing to do so be liable if any losses suffered by the creditors if delaying winding up process.

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mm About the Author / Dinushka Medagoda

A Lawyer and Human Resource professional . He has been involved in Commercial, Customs Litigation, Criminal Appeals and Corporate Consultancy.

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