The principal organs of a company are its general meeting and its board of directors. The Companies and Allied Matters Act 2020 (CAMA) describes directors as the company’s trustees, managing the company’s properties and assets for the benefit of the company.
Nonetheless, in strict practice, directors do not qualify as trustees in the legal sense of the word, but act as trustees in similar manners under the laws of trust.
In the famous British case of Re Lands Allotment Co., the British courts rightly identified that the position of directors is not strictly trustees, yet directors have always been treated as trustees to the company and would be liable for any loss they bring to the company deliberately or through negligence.
This work details the steps to appoint directors in companies under the CAMA.
Executive and Non-Executive directors
The directors of a company could be executive or non-executive directors. The difference between the two directors is in the manners in which they are appointed and the functions they generally run for the company.
The executive directors are appointed by the Shareholders to run the company, they practically see to the day-to-day running of the company and are offered contracts of employment.
Non-executive directors on the other hand are directors that are appointed by the Shareholders to check the excesses of the executive directors. The non-executive directors do not participate in the running of the day-to-day activities of the company and hence are not paid salaries and do not receive appointment contracts. Rather non-executive directors are given allowances for their efforts for the company.
This work seeks to identify the steps to appointing executive directors in a company.
How to appoint a director in a company
There are various forms of appointing directors under CAMA, these forms are dependent on the type of directors intended to be appointed. Directors could be appointed as the following:
1. First directors;
2. Subsequent directors;
3. Alternate directors; and
4. Causal vacancy directors.
We shall move to identify each appointment with relevant explanations and implications.
1. First directors
As the name implies, first directors are the first appointed managers of the company. These directors are the first to be appointed to run the affairs of the company. The first directors of a company are usually appointed by the subscribers to the company.
The appointment of the first directors of the company is undertaken by the company subscribers placing the names, addresses, phone numbers, email, and occupations of each director on the application form for the incorporation of a company. The first directors’ details are usually contained in the incorporation document of the company after registration.
2. Subsequent directors
Any other director(s) appointed after the company has been registered are subsequent directors. CAMA provides that directors are subject to rotation, this means that directors must retire from their positions and allow other persons to take their place as directors.
The provisions of CAMA state that all the first directors must retire at the first annual general meeting of the company and the subsequent directors of a company must have one-third of its number retire; this means if there are six directors in a company, two directors must retire in every annual general meeting- this is otherwise known as the rotation of directors.
Once a director retires, new directors would be appointed to fill their space. The steps to appointing subsequent directors are detailed below:
- The shareholders of the company nominate persons to fill up the positions of the directors to retire during the annual general meeting.
- The nomination and selection are placed as an agenda on the notice of a meeting of the company and sent to the directors for a resolution.
- The shareholders pass a resolution appointing the director(s) as subsequent directors to the company.
- The company offers an appointment contract informing the new director(s) of the appointment.
- The company within 14 days of appointing the subsequent directors files the CAC7 (change of directors) with the Corporate Affairs Commission (CAC) indicating the change.
- The submission above would be accompanied by a copy of the resolution appointing the director, evidence of the payment of filing fees, evidence of filing annual returns, and evidence of the payment of the Financial Reporting Council fees.
3. Alternate directors
An alternate director is a director who is appointed to act for and on behalf of another director. The alternate director is not appointed by the company but is appointed by the already functional director in the company.
For instance, when a director in the company appoints an agent or secretary or personal assistant to act for him, such a person would be regarded as a director who can make decisions on behalf of their principal.
Alternate directors can attend meetings, sign agreements, and debate on issues on behalf of the principal director, such director is answerable to no one except the principal. The Nigerian case of Baffa v. Odili stated that the difference between a substantive director of a company and the alternate director is that the latter is appointed by the former.
Nonetheless, for an alternate director to function, the company’s articles must provide for such an occurrence.
4. Casual vacancy directors
A casual vacancy director is a unique type of director not anticipated by the company or the company’s board. The casual vacancy director is one appointed to fill up the position of another director who becomes vacant before the general meeting of the company.
The usual practice is that subsequent directors are appointed at the general meeting of a company by itself, in some instances, directors become vacant before that general meeting date.
To that end, CAMA resolves the process by appointing casual vacancy directors. A director can become absent for the following: death, resignation, becomes bankrupt or becomes insane. The unique feature of the appointment of casual directors is that the company doesn’t make the appointment, the remaining directors do.
The existing directors appoint a casual vacancy director to fill a vacant position on the board. This is extremely important because the company articles might require a specific amount of directors, for instance, three, if one or more directors become vacant before the next general meeting, a casual vacancy must be made by the existing board of directors to fill up the position.
The director of the company acts as an agent to see to the everyday business of the company. The director has varying duties including appointing the secretary, fixing the financial year and declaring dividends.
Frequently Asked Questions (FAQs)
The most senior directors retire in a rotation.
CAMA provides that at least one-third of the number of directors are to form a quorum, subject to the articles of the company.