Page 287 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes or superintend a company’s affairs. Section 291 has entrusted the management of the affairs of
the company in their hands. They chalk-out the general policy of the company within the
framework of the Memorandum of the Company. They appoint the company’s officers and
recommend the rate of dividend. The directors of company are collectively referred to as the
‘Board of Directors’.
The exact position of ‘director’ is hard to define, as no formal definition, either statutory or
judicial, of the term has been given. However, judicial pronouncements have described them as
(i) agents, (ii) trustees, or (iii) managing partners.
The directors act as agents of the company and the ordinary rules of agency apply. They exercise
the powers and are subject to duties within the framework of the company’s Articles, and the
Act. For instance, they may make contracts on behalf of the company and they will not be
personally liable as long as they act within the scope of their authority. But if they contract in
their own name, or fail to exclude personal liability, they also will be liable. If the directors
exceed their authority, the same act may be ratified by the company. But if they do something
beyond the objects clause of the company, then the act is ultra vires and the company cannot
ratify the same. But directors are not agents for the individual shareholders; they are the agents
of the company – the artificial person.
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 the trust
and are in certain respects in the position of trustees for the company. Such cases are:
(i) They are trustees of money which comes to their hands or which is actually under their
control. If they misapply company’s money, they have to make good the same as if they
were trustees.
(ii) They are trustees for exercising powers conferred on them for the benefit of the company.
For instance, powers to allot shares, to make calls, forfeit shares should be exercised bona
fide in the interests of the company.
(iii) 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 misrepresentation to sell the shares to him.
The directors are also sometimes described as managing partners. They manage the affairs of
the company on their own behalf and on behalf of other shareholders who elect them.

Did u know? Are the directors employees of the company?
They are not employees of the company or employed by the company, nor are they
servants of the company, or members of “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.

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