Basic Business Law. Lesson 8. Companies

The appointment of the auditors requires only an ordinary resolution. Only 40% of
the voting rights are being exercised. The rule states that 51% of the voting rights
being exercised must be in favour of the resolution in order for it to pass.
In this case that means that 3 of the four shareholders present must be in favour (i.e. 75%) as 50% (i.e. 2 out
of four) will not be enough to pass the resolution.
8. Duties and rights of directors
Directors are required to disclose any “personal financial interests”. They may not use their position as
director or information gained as a director to make a secret profit or gain advantage for themselves or
someone else or to cause harm or detriment to the company.
The Act deals comprehensively with the election, disqualification, vacancies, removal, meetings, resolutions,
and liabilities of directors.
The common law is and remains the primary source of director’s duties. Although, in practice, the MoI
prescribes the extent of the directors' powers and a director who acts outside the ambit of the MoI will be
answerable to the company for his conduct. The function of the law is to supplement and add detail to the
responsibilities of directors as contained in the MoI and to deal with areas on which the MoI is silent.
At common law a director owes two types of duty to the company, a fiduciary duty and a duty of skill and
care.
8.1. The fiduciary duty of a director
A fiduciary is a person who is in a special position of trust. A director is a fiduciary and therefore must act in
good faith in his dealings with or on behalf of the company and he must exercise the powers and fulfil the
duties of his office honestly. A director cannot be relieved of his fiduciary duties by agreement or by any
other means. Any act amounting to an evasion of his duty is seen in the same light as a breach of the duty
itself.
The fiduciary duty has four aspects. Firstly a director has a duty to act in good faith and do what he honestly
believes is in the best interests of the company. Secondly a director must not use his powers for improper
purposes, even if he believes that to do so would be in the best interests of the company. In addition he must
exercise his powers as director for the benefit of the company and for the purpose of which they were
conferred.
Further a director must not put himself in a position where there is an actual or potential conflict between his
duty to the company and his personal interests and lastly a director is regarded as a trustee of company
property, and he must not knowingly participate in or ignore the misapplication of company property.
8.2. The director’s duty to display a reasonable level of skill and care
When a director is acting in the company's interests he is to exercise whatever skill he possesses and
reasonable care.