ABA 302: Company Law

ABA 302: Company Law

MASENO UNIVERSITY

http://ecampus.maseno.ac.ke/

ABA 302: Company Law

MEETINGS OF BOARD
The directors of a company exercise most of their power in a joint meeting called the meeting of the board. In the case of every meeting, a meeting of the board of directors must be held at least once every three months and at least four such meetings shall be held in every year. However, the government is empowered to relax to rule with regard to any class of companies. Notice of every meeting of the board of directors must be given in writing to every director for the time being in Kenya, and at his usual address in Kenya to every other director. Every officer of the company who is under duty to give the notice as aforesaid and who fails to do so, shall be punishable with fine. The quorum for the meeting of the board shall be one third of its total strength (any fraction contained in that one third being rounded off as one) or two directors whichever is higher. Interested directors are not counted for the purpose of the quorum. When the meeting of the board could not be held for want of quorum, then unless otherwise provided by articles, the meeting shall automatically stand adjourned till the same day in the next week. Powers of board As the company is an artificial person, it acts through its directors. The directors enjoy such powers as are given to them by the act, memorandum or articles. The powers of directors are discussed under the following heads:General powers:The board enjoys powers to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. But the board cannot do any act which is to be done by the company in general meeting. In exercising any power, the board will be subject to the provisions of this or any other act, the memorandum or the articles. Powers to be exercised by board only at meeting:The following powers can be exercised by the board, only by the resolution passed at the board meeting:(a) (b) (c) (d) The power to make calls; The power to issue debentures; The power to borrow money otherwise than on debentures; The power to invest the funds of the company; Page 1 of 6

ABA 302: Company Law (e) Powers to make loans. Powers specified in points (c), (d) & (e) above can be delegated by the board, at a meeting by means of a resolution to a committee of directors, to the managing director, to the manager or to other principal officer of the company. Restrictions on powers:The board of directors of a public company or of a private company which is a subsidiary of a public company shall not exercise the following powers except with the consent of the company in general meeting:(i) Power to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company; Power to remit or give time for re payment of any debt due to the company by a director. However no such consent is required for renewal or continuance of an advance made by a banking company to its director in the ordinary course of its business. Power to invest otherwise than in trust securities, the amount of compensation received by the company in respect of the compulsory acquisition of any undertaking or property of the company; Power to borrow money, where the money to be borrowed together with the moneys already borrowed by the company will exceed the aggregate of the paid up capital of the company and its free reserved; Power to contribute to charitable and other funds not directly relating to the business of the company or the welfare of its employees.

(ii)

(iii)

(iv)

(v)

Duties of directors As directors hold a key position, they are bound to comply with the provisions of the companies Act. They shall carry out all the duties placed upon them by either the Act or articles. The duties of the directors of a company have been laid down by Lord Justice Romer in Re- City Equitable Fire Insurance Companys Case and are summarized as under:(1) Duty of reasonable care:In discharging the duty of his position, a director must exercise some degree of skill and diligence. A director need not exhibit in the performance of his duties a greater degree than may be reasonably expected from a person of his knowledge and experience. The direct are not liable for mere errors of judgment. (2) Duty to act honestly:-

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ABA 302: Company Law A director must act honestly in the performance of his duties. He must not try to make personal gain out of a transaction in the name of the company. (3) A director is not bound to give continuous attention to the affairs of the company. He is not bound to attend all board and committee meetings. (4) Though all books of account and other books and papers of the company are open to inspection by him, he is not bound to examine individual entries in the books. Directors duty of disclosure:Except with the consent of the board of directors, a director or his relative or firm in which he or his relative has any interest or any private company of which he is a member or a director shall not enter into any contract with the company for the sale, purchase or supply of goods, materials or services or for underwriting the subscription of any shares or debentures. In the case of a company having a paid up share capital of Kshs ten million or more, no such contract can be entered into except with the previous approval of the government. Consent of the board of directors is not necessary in the following cases:(1) Sale and purchase of goods for cash at prevailing market price. (2) Contracts entered into in the regular course of business (3) Any transaction in the ordinary course of business of a banking or insurance company Liabilities of directors:The liabilities of directors may be discussed under three heads:(1) Liability to outsiders:The directors are not personally liable to outsiders if they act within the scope of powers vested in them. The general rule in this regard is that whenever an agent is liable, those directors would be liable, but where the liability would attach to the principal only, the liability is the liability of the company. The directors are personally liable to the third parties in the following cases:(a) (b) (c) (d) They contract with the outsiders in their personal capacity. They contract as agents of an undisclosed principal. They enter into a contract on behalf of a prospective company When the contract is ultra vires the company.

In default of statutory duties, the directors shall be personally liable to third parties in the following cases:Page 3 of 6

ABA 302: Company Law (a) (b) (c) (d) Mis-statement in prospectus Irregular allotment Failure to repay application money if the minimum subscription is not subscribed Failure to repay application money if allotment of shares and debentures is not dealt in on the stock exchange as provided in the prospectus.

(2) Liability to company :The directors shall be liable to the company for the following:(a) Where they have acted ultra vires company (b) When they have acted negligently. Negligence may give rise to liability; there need not to be fraud. But they will not be liable if they acted bonafide and for the benefit of the company. (c) Where there is a breach of trust. Directors being the trustees of the company, they should discharge their duties in the best interest of the company. (d) Misfeasance:- directors are liable to the company for misfeasance. The word misfeasance covers willful misconduct or willful negligence. Mere failure on part of the director to take necessary steps for recovery of debts due to the company does not constitute misfeasance. (3) Criminal liabilities of directors:So far we have dealt with civil liability of directors. For act of fraud, default in discharging their duties and mis- demeanour, the act provides penalties by the way of fine and imprisonment.

ther managerial personnel In addition to the board of directors, a company may employ a managing director or a manager. Managing director Under companies act, 1962, a public company including a private company which is a subsidiary of a public company, the appointment of a managing director shall not have effect unless approved by the government. In the case of a company formed after the commencement of the companies (amendment) Act, 1978, the first appointment of the managing director may be made without such approval. The government shall not grant its approval unless it is satisfied that:(1) It is in the interest of the company to have a managing director. (2) The proposed managing director is fit and proper person and the appointment is not against public interest. (3) The terms and conditions of appointment are fair and reasonable Page 4 of 6

ABA 302: Company Law The government may, if it is of the opinion that it is in the interest of the company, reduce the period of appointment proposed by the company. Disqualification of a managing director:A person cannot be appointed as the managing director or whole time director of a company if he suffers from any of the following disqualifications:(i) (ii) (iii) He is an un discharged bankrupt or has at any time been adjudged a bankrupt He suspends or has at any time suspended payment to its auditors or has made a composition with them. He is or has been convicted by the court of an offence involving moral turpitude.

Manager A manager means an individual having management of the whole or substantially the whole of the affairs of the company. He exercises powers subject to the control, superintendence and direction of the board of directors. No firm, body corporate or association of persons can be appointed as a manager. Disqualification for the office of manager:A person will not be appointed manager of a company if he:(i) (ii) (iii) Is an un discharged bankrupt or has at any time within the proceeding five years be adjudged bankrupt; or Suspends or at any time within proceedings five years suspended payment to his creditors or makes or has made within the above period a composition with them, or Is or has at any time within the proceeding five years been convicted by a court of an offence involving moral turpitude.

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