Directors: Meaning, types, appointments, and more
Meaning of a director
Directors are individuals appointed by the company to run the business and the affairs of the company. Directors are considered the brain running the management of the company for increased productivity in the end. Directors can work in executive, non-executive and in whatever varying capacity the company delegates on them.
The test to identifying a director of a company is to understand how significant such a person’s decisions have on the overall success of the company, thus in the British case of Re forest of Dean Coal Mining Co, the British courts recognized as director an individual who was commonly referred to as a trustee by the company.
This article seeks to provide insight into all there is to know about directors of companies.
Status of Directors to a company
The puzzling question that has perhaps risen in debates regarding directors, is the position of directors in the company. The Companies and Allied Matters Act 2020 (CAMA 2020) provides that directors are trustees to the company, who act on behalf of the company as directed by its Articles of Association and other directives by the company’s shareholders.
Nonetheless, in the case of Re Lands Allotment Co, the British courts rightly identified that directors do not act in the capacity of trustees to a company in the strict sense of the word trustee. This British position was accepted by the Nigerian Supreme Court in the case of Essang v. Aureol Plastics Ltd. Directors are more agents of a company than trustees, their actions are held as the actions of the company itself.
Types of Directors
1. Executive Directors
Also known as the Board of Directors; executive directors are directors that see to the day-to-day running of the operations of the company.
They act as servants to the company undertaking tasks to see to the overall development in revenue by the company. Executive directors have directors’ employment contracts and are paid wages for their labour.
2. Non-executive directors
The non-executive directors are appointed by the shareholders to advise and be a watchdog to the executive directors. These directors do not get engaged with the company’s day-to-day running of its affairs but overview the activities of the executive directors.
Non-executive directors do not receive employment contracts but receive letters indicating their responsibilities and service. They also do not receive salaries but are entitled to sitting allowance.
3. Representative directors
Most times a company can be placed on the board of another company. When this occurs, the former company would appoint a representative to act as the director on its behalf in the latter company.
All rights and privileges given to the directors of the company extend to the representative director.
4. Alternate director
Alternate directors are appointed by substantive directors. For instance, a director’s assistant who acts on the director’s behalf is regarded as an alternate director. The original director can send his alternate director to attend the directors’ meeting and vote on his behalf and perform other functions.
Whatever the alternate director does is binding on the substantive director. The appointment of the alternate director is dependent on the articles of association of the company.
5. Casual vacancy director
A casual vacancy director is one appointed to fill up the already existing position of a director. This occurs when a director dies or resigns or for one reason or another other is incapable of functioning as a director.
6. Shadow director
This is a special kind of director who is neither seen nor heard in the company but whose affairs decisions or directions influence the company’s board of directors.
The test for a shadow director is anyone outside of the board of directors who commands the board on what to and what not to do.
Appointment of directors
Directors’ appointments are classified into two, the first being the first directors and the second being the subsequent directors
- Appointment of first directors: The first directors of the company are appointed by the shareholders who subscribed to the shares of the company on incorporation. The names of the first directors are contained in the registration documents of the company.
- Appointment of subsequent directors: Subsequent directors are appointed by the existing members of the company at the company’s general meeting through a simple resolution.
Rotation of directors and Life directors
CAMA 2020 provides that all executive directors in a company must be rotated to give way for new talents. This means old directors must resign from their positions and allow new directors to be appointed. The CAMA provides that all the first directors of a company must resign at the next annual general meeting of the company and one-third of the subsequent directors must retire in every annual general meeting of the company.
A Life director is not subject to the rule of rotation as provided above. The director doesn’t retire at the general meeting and serves for life. Nonetheless, the life director can be removed as a director by the shareholders but is not subject to rotation.
Removal of directors
CAMA provides the procedure to remove a director. Nonetheless, the provisions of CAMA as it relates to directors’ removal are subject to the articles of association of a company.
To remove a director, CAMA requires the company to pass a special resolution sanctioning the removal. The company is to send out a special notice to the members of the company indicating the director to be removed and a new director replacing the removed director as a casual vacancy director. The director to be removed shall also receive a copy of the notice for his removal and has a right to be heard by the general meeting if he opts to lay a defence.
The director to be removed can also make a written representation, such representation shall be sent to the company’s members with a copy of the special notice for the director’s removal.
Directors are significant parts of a company’s development. Having the right directors in place can significantly boost shareholders’ and other investors’ confidence in the business and functioning of the company.
Frequently Asked Questions (FAQs)
Yes, a director must be at least 18 years of age and for a private company, a person to be appointed director of a public company and is over 70 years old must declare his age.
Yes, CAMA provides that persons who are lunatics and have been found guilty of fraud in the last 5 years preceding the director’s appointment are disqualified from being directors.
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