According to the Oxford dictionary, a director is a person in charge of an activity, a project, an organization or a department. A director of a company, together with fellow/ other directors, are most often than not, referred to as a board of directors. A director has the responsibility of putting into place the Company Policy.
Directors derive their powers from the Company’s articles of association and the corporate legislation, mainly the Companies’ Act.

Directors are agents of the company and their acts are binding on the Company.

Section 142-147 of the Companies’ Act requires directors to: –

  • Act in within the powers conferred upon them by the constitution of the Company and the Companies Act
  • Act in good faith, in a manner as to promote company success. This means taking into consideration the long- term goals of the company, its employees, the impact of company operations on the environment, and the overall need to act fairly.
  • Exercise independent judgement. This means that directors ought to carefully evaluate decisions issues presented before them and make decisions with sobriety.
  • Exercise reasonable care due care and skill, that would be exercised by a person of the same capacity as a director.
  • Avoid situations in which the director has, or can have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company. This means that where a director finds him/herself in a compromising situation where personal interests clash with those of the company, the interests of the company should come first.
  • Decline benefits from third parties where and if the benefit is attributable to the fact that the person is a director of the company.
  • Duty to promote the success of the company.

Directors therefore have a fiduciary duty to the Company. A fiduciary duty is a legal obligation that expects one party to act in the best interest of another. Directors are therefore entrusted with the care of Company matters, decision making, property, investment decisions among many others.

Should a director breach these fiduciary duties placed upon them, there are consequences.

Directors are personally and will be personally liable for any losses suffered by the Company as a result of a negligence. (Section 194(2))

Section 703 states that Directors are liable for all false or misleading statements in Company financial statements and reports, especially if they were aware or ought to have known that the statements were untrue/misleading/reckless.

The directors are liable to compensate the company for any loss suffered as a result.

For further queries, contact us on cs@imperialregistrars.co.ke

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