Pray tell, what comes to your mind when you think about directors? Those spending the company’s money, people that own the company? These descriptions are not quite true when it comes to the legal and practical aspect of running a company. Yes a director may be a member (i.e he owns shares) of the company but shareholding is not a default requirement of directorship. In fact, remuneration is not automatic for a director, it has to be stated in the articles of the company or in a contract between the director and the company.
Who are directors? We can call them the engine room. They are involved in the day to day running of the company. Sometimes the company may not give them that name but when you look at their functions, you might as well give them a shiny medal that says director. Some of them are not even in the scene at all, they’ll just be running things in the shadows (pun intended), and giving orders to another director; those ones too are seen as directors under the law. If you are now one kind of lucky person who doesn’t do any real work but the company calls you director, because you like big names, issorait, you are among! I just described as far as possible the wide scope of who a director really is. Please read Section 249 CAMA remember our deal HERE, hold all necessary materials.
Who can be a director? One who is not:
- an infant,
- a lunatic or of unsound mind
- Insolvent under Section 253
- a fraudulent person under Section 254
- eligible for vacation of the office under Section 258
- A company except a rep of the company appointed for a given term.
How do directors get elected? There are two species of directors, in this regard: First Directors and subsequent directors.
First directors are the follow-come directors, they started with the company. At incorporation, remember Form CAC 7 (if you don’t, run along and look at it)? Well, those names you put in that form are the first directors. In addition their names might be included in the MEMART.
Subsequent Directors: when the company is running smoothly, you might wanna add some more directors, there’s no maximum limit, you are only subject to your articles and a minimum of 2*. There are four ways.
- By the AGM: The company can come together to appoint new directors as they want Section 248(1) This is done by either NOMINATION or RECOMMENDATION Section 259(4)
- In the article of your company, because you love your boo like that, you may say your girlfriend or your boyfriend has the power to randomly appoint anyone of his choosing as a director in your company. Once bae is ready to exercise this power he may do so.
- By Representatives: If all directors of a company die at once, any of the personal representatives may apply to the court so that a meeting of all the PRs will be held to appoint new directors; where the PRs fail to do this the creditors of the company may apply to the courtSection 248(2)
- By the Board of Directors: Note that the only organ in the company that can appoint a director is the company in general meeting. However there may be a casual vacancy. This simply means the position of a company director is vacant whether due to death, resignation or disqualification and the other directors are feeling lonely without the person. The directors can appoint someone pending ratification by the annual general meeting. The ratification is necessary and where the company memebers do not vote in favour of the person, his employment as director is terminated. Section 249
Rotation/retirement of directors: This is a special procedure, it is independent of resignation or vacation of office of the director. The rule is that at the first AGM, all directors must retire. Subsequently, only one-third of the number of directors (if it is not a multiple of 3, the nearest figure). Who retires first? The oldest member(s); if it comes down to 2 or more persons appointed on the same day, someone can sacrifice himself or lots are cast. If the retiring director is replaced by another one, for the purpose of rotation the new one is deemed to have been appointed on the day the old one was appointed. However some special people are exempted from this rotation thing:
Life directors, directors enlisted in the article: When it comes to rotation they are not even counted in the number of those to retire. I’ll illustrate this later. IT doesn’t mean the company in AGM cannot delete them as they like, just that when it comes to this rotation, they are exempted. See Longe v. FBN Section 262.
When rotation occurs, does it mean the director(s) fit to retire is/are just kicked out like that? No, actually he is deemed re-appointed if ALL of the following occur:
- He is actually interested in chopping more money being re-elected
- There is no resolution to the contrary at the AGM e.g. one in which he lost his bid for re-election (eyah no fans) or the company just wants his position to be vacant like that (too much haters)
- Nobody has been successfully elected in his place.
The above three requirements are only used to get RETIRING DIRECTORS back on board. For newcomers, you have to go through either NOMINATION or RECOMMENDATION see below
Nomination by a member: You must give a written notice saying, look I want this guy to be the director, I believe in his potential; also the guy himself must sign that he too is interested in such enjoyment; 3-21 days before the meeting where the AGM will vote. Only members can use this method.
Recommendation by the board: Notice I said board or a majority of them, not a single director. So if the board in their professional knowledge want to bring their guy from way back, all they do is tell him to show up (with his Sunday clothes) on the day of the meeting and the board says, Tada we recommend Okon, he’s the best man for the job blah blah blah, then the members vote. So I guess in choosing new directors only the board is allowed to spring surprises, the shareholders cannot.
Removal of directors: Yeah, so you the esteemed members of the company are not satisfied with the services of a director, what do you do?
- Give a special notice [28 days] of the resolution to remove the guy; drop it at the registered office.
- Company forwards the notice to the guy and the attendants of the meeting, 21 days before the meeting.
- He makes representations if he wants to (just in case they are lying, hmmm ohmygod) and asks it to be forwarded along with the notice of meeting.
- At the meeting allow the guy to defend himself and just in case his representations were not sent in on time, he should be allowed to read it out.
- Company passes an ordinary resolution on whether to remove the director or not
- If he is removed, File for CAC 7 (within 14 days) and edit the register of directors and secretaries, as well as other necessary documents
Notice that CAMA does not specify whether the director is managing director, executive director or whatever, this is because those special director positions are filled by the board itself, so to remove the MD the board not company passes a board resolution at the board meeting. Is the guy no longer a director just because of that? No, he is now an ordinary director. It is like demoting a prefect, is it automatic expulsion? No the school will have to do that specially. Removal of directors is the special power of the GM can’t take it away from them Section 262 LONGE V. FBN YALAJU AMAYE V. AREC
Overaged directors: Age is nothing but a number right? The CAMA does not agree with this, for public companies. When you are a director of a company or someone puts you up for nomination, and your 70th birthday is around the corner, special notice has to be given to the company. When the company is notified, the notification is sent along with the normal notice of meeting and then the people vote whether you stay or leave.
Multiple appointments: What if you decide to appoint 2 directors on the same day? It’s fine but if the company is a PLC, the company must first resolve unanimously (everyone must agree) to appoint two directors with one resolution (reason it, what if one candidate is not so loved and he’s trying to hide under another more popular candidate), then you go ahead and vote on the resolution.
Vacation of office, check out Section 258
Remuneration: Apart from MDs provided for in Section 268, directors are not automatically entitled to remuneration apart from expenses incurred in the course of their duties a.k.a transport fare. But of course the articles may state their remuneration or the company enters into a contract with the director, stating the terms of service and all that. Southern Founderies v. Shirlaw. Also compensation for loss of service is not automatic, it must be in the articles or a contract. It may be changed from time to time by the company, not the board (for obvious reasons).
Duties of a director: They stand in fiduciary duties to the company and must therefore behave themselves. No excessive spending, no conflict of interest, no mago mago, no wayo, if he must do business with the company the GM MUST ratify it, if he made any profit from his duties he must declare, if he is director of two companies he must not use info gotten from one to trade in the other, and so on. See Sections 277 – 281.
The remedies of the company are recovery profits made, rescission of contracts, damages and compensatinon, injunctions and declaration or the ultimate: remove the offending director according to the procedure above.
Let’s talk about the secretaries on the next post. Stay tuned.
Note: Anywhere you see special notice it is 28 days unless stated otherwise. When I say company with respect to decision making, I’m referring to the GM (GENERAL MEETING). When we do meetings you gon’ see why.