Who is a director?
The Companies and Allied Matters Act (CAMA) defines directors as “persons duly appointed by the company to direct and manage the business of the company”. It further describes directors to “include any person occupying the position of director by whatever name he may be called and includes any person in accordance with whose directions or instructions the directors of the company are accustomed to act”. Directors are officers of a company who are appointed to operate the business for the benefit of the shareholders. According to CAMA, ‘officer’ in relation to a corporate body includes a director, manager or secretary.
There are two broad categories of directors in modern corporate practice and governance. They are executive directors and non-executive directors. Executive directors are those directly engaged in the day to day management of the business on a full time basis while non-executive directors are external board members who act as a check on the executive management. They are usually appointed on part time basis and they have become more prominent with the development of corporate governance.
Appointment of directors
The authority to act as a director of a company comes the director’s appointment. A person who acts as a director without being appointed commits an offence and would be personally liable for any actions taken. Where the company holds out a person not duly appointed as a director to carry out responsibilities in that capacity, the company will also be liable to a fine. However, although that director may not have been duly appointed in accordance with the law, his actions in that capacity may still bind the company as if he were a properly appointed director if it is the company that holds him out as a director. Therefore appointment is a fundamental to validating the position and authority of a director of a company.
In Nigeria, the law provides for the manner in which the director of a company may be appointed: who can appoint and how to appoint a director. For the first directors, the law provides that they should be appointed by the subscribers to the memorandum of association of the company, a majority of them or they may be named in the articles of association of the proposed company. For subsequent appointments generally, it is the shareholders in a general meeting who are empowered by law to appoint directors by ordinary resolution. The board of directors of a company could also appoint other directors subject to the approval of the shareholders at the next annual general meeting where a vacancy arises from death, resignation, removal of a director. This is referred to as filling a casual vacancy and where the newly appointed director is not approved by the shareholders in a general meeting, he would cease to be a director. Where all shareholders and directors of a company die, any of the personal representatives may apply to court to convene a meeting of all personal representatives of the shareholders entitled to attend and vote at a general meeting to appoint new directors to manage the company. Where the personal representatives of the deceased shareholders fail to do so, the creditors of the company, if any, shall be able to appoint a director.
What role does the Articles of Association play in appointment prescriptions? Life director, share qualification.
The Articles of Association is the document that makes provisions for the internal management of a company. It is a part of the constitution of the company which sets out the rules for running the company.
Typically, the Articles of Association should contain provisions relating to share capital, classes of shares, rights and restriction to each class of shares, allotment, transfer and transmission of shares, meetings, resolutions, directors, auditors, company secretary, the seal, winding up etc.
With regards to directors, the articles of association prescribes the appointment, removal, disqualification, remuneration, tenure of office, rotation, filling of casual vacancy of directors and also provides for life director where the company so wishes. Usually, in corporate practice, where the law is silent on an issue, it is the articles of association that would provide direction on such issue thus, for instance, in Nigeria; the CAMA, is silent on the issue of alternate directors although the practice is recognised in the corporate sector. Therefore, companies that wish to have alternate directors would make such provision in the articles of association as the basis for adopting the practice. Another instance is meetings via conference calls.
This post was written by Teingo Inko-Tariah, Teingo is a lawyer at Accord Legal. This post first appeared on LegalNaija.