THE COMPANIES ACT, 2004 (hereinafter called 'the Act') along with the Regulations thereto makes it much easier for people to incorporate companies. In fact, with the relevant forms properly completed and accompanied by the payment of the relevant fees, a company can be incorporated in just 48 hours.
There is no doubt that in a modern economy, business people and others who would wish to have a company incorporated would not want to wait forever to have it done. This is true. However, with the incorporation of a company, at least one person becomes a director. Many of these people are just the ordinary man on the street who thought it best to form a company. This week, Legal Eagle will examine the duty of care of a director in a private company.
Section 172 of the Act provides that a private company shall have at least one director and every company shall have a secretary. However, it is section 174 of the Act which lays down the duty of care of the director. The said section provides for directors and officers in exercising their powers and duties to: "Act honestly and in good faith with a view to the best interest of the company and to exercise the care, diligence and skill that a reasonable prudent person would exercise in comparable circumstances, including, but not limited to the general knowledge, skill and experience of the director or officer".
IN GOOD FAITH
The director would have been deemed to have acted in good faith, diligence and skill if without fraud and bad faith the director relied in good faith on documents pertinent to the company's affairs. These documents would include financial statements, reports of experts and information presented by other directors, officers and professionals.
The director from time-to-time must determine what is the best interest of the company. In doing so, he must have regard to what is the best interest of the company's shareholders, employees and the community in which the company operates. The duties of the director referred to above are owed to the company alone.
Directors who perform management functions pursuant to a contract of service may, if the contract stipulates, observe a higher standard than normally would be expected of a director.
Keith N. Bishop is an attorney-at-law and partner in the firm of Bishop & Fullerton. He can be contacted by email at knb@bishopfullerton.com.
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