Friday, 28 January 2022

Powers, Duties and Liabilities of Directors

There are various powers that are vested upon the directors and we will discuss below the various powers and duties conferred upon the directors in a company and their liabilities.

Powers of Directors-

The powers of the directors have been enumerated under Section 179 of the Companies Act,2013. According to this section, the board of directors shall exercise all the powers which the company is authorized to do. Resolutions passed in the general meeting do not a retrospective effect upon any act done prior to such general meeting and it cannot invalidate the act done by the board of directors.

  • The BOD shall make calls on shareholders.

  • To authorize the buy-back of securities and shares.

  • The BOD shall issue securities and shares.

  • To borrow monies. (Monies is the plural form of money and it is commonly used in financial terms.)

  • The BOD shall invest the funds of the company.

  • The BOD shall approve the financial statements of the company.

  • To grant loans.

  • To provide security for loans.

  • Or any other matters as prescribed.

Powers like investing, borrowing monies, granting loans, providing security or guarantee in respect of loans can be delegated by the Board of directors to any other committee of directors or any other person in the company by passing a resolution in the board meeting.

Also, the company can impose certain restrictions and conditions on the power of the board of directors as per Section 179 of the Companies Act,2013.

Duties of Directors-

  1. As the directors have a fiduciary relationship with the company, and they may be held liable for their breach of core duty. So, the directors need to perform their duties with professional skill and care.

  2. The directors need to act in utmost good faith for the best interest of the company and its members.

  3. Directors need to attend all the meetings. According to section 167(1) (b) if the director abstains from three consecutive board meetings for a consecutive period of three months, then he is liable to vacate his office.

  4. Directors have a duty to disclose their personal interests in any transaction of a company. Directors should ensure that their personal interests do not clash with that of the company because there exists a fiduciary relationship between a director and a company.

  5. A director can delegate his powers but it is allowed only when the Articles of Association have conformity with it.

With duty comes liability and the following are some of the liabilities of a director-

  1. As we know there lies a fiduciary relationship between a director and a company. So, a director is expected to work honestly for the company and if the director works dishonestly for the company, then there is a breach of fiduciary duty. Director will be liable for the breach of the fiduciary relationship.

  2. As we know the company revolves around two documents that are the Memorandum of Association and Articles of Association which draw the boundary for a company. And if the director goes beyond the boundaries, then they would be personally liable.

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