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Unit 10: Management of Company

10.2.2 Directors as Trustees Notes

The directors have also been described as trustees. But they are not trustees in the full sense of
the term, in as much as no proprietary rights of the company’s property are transferred to them
and, therefore, they enter into contracts on behalf of the company and in the name of the
company. On the other hand, in the case of a trust, the legal ownership of the trust property is
transferred to the trustee and therefore, he can enter into contract in his own name, but whatever
he does, he does for the benefit of the beneficiaries.
Although directors are not trustees in the real sense of the term, they occupy an office of trust
and are in certain respects in the position of trustees for the company. Such cases are:
They are trustees of money which comes to their hands or which is actually under their
control. If they mis-apply company’s money, they have to make good the same as if they
were trustees.

They are trustees for exercising powers conferred on them for the benefit of the company.
For instance, powers to allot shares, to make calls, or to forfeit shares should be exercised
bona fide in the interests of the company.

They stand in a fiduciary relationship to the company and, therefore, whenever there is
clash of his personal interests with that of the company, he should keep in mind the
company’s interests.
A director is in no way a trustee for individual shareholders except when the former induces the
latter by mis-representation to sell the shares to him.
10.2.3 Directors as Managing Partners

The directors are also sometimes described as managing partners. In this sense, a company is
considered a partnership firm. As one or more partners may manage the affairs of the firm on
behalf of all the partners, similarly a few shareholders, who are elected directors by the
shareholders, manage the affairs of the company. They manage the affairs of the company on
their own behalf and on behalf of other shareholders who elect them.

10.2.4 Directors as Employees of the Company

The directors are not employees of the company or employed by the company, nor are they
servants of the company, or members of the “company’s staff”. A director can, however, hold a
salaried employment or an office in addition to that of his directorship which may, for these
purposes, make him an employee or servant and in such a case, he would enjoy rights given to
employees as such; but his directorship and his rights through that directorship are quite separate
from his rights as employee. Thus, he is then entitled to remuneration and other benefits
admissible to him as an employee in addition to his remuneration as director under the Act. The
Act recognises situations of this nature. Sections 314 and 318, for instance, provide for a director
holding an office or place of profit under a company.

10.2.5 Director as Officers of the Company

Directors are treated as officers of the company [s. 2(30)]. Also, directors are ‘officers in default’
(s. 5) and may become liable to certain penalties for failure to comply with certain provisions of
the Act.

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