Question

Answer the following question:

Explain the role of the director?

Answer 1

The role of directors:

i) As an Agent:

(1) A company, being an artificial person cannot act on its own. It acts through the Directors. They, therefore, resemble as agents of the company in the eyes of law. As agents, Directors can enter into contracts, sign agreements or contracts, carry on the business, and perform all the other duties on behalf of the company.

(2) As agents, they must act within the scope of their authority and in the name of the principal (i.e. the company). They would be personally liable if they enter into a contract in their own name or use the company’s name incorrectly or exceed the powers given to them by the Memorandum of Association or the Articles of Association.

ii) As managing partners:

(1) Directors represent owners of the company viz. shareholders. As the Directors are elected representatives of the shareholders, they are entrusted with vast managerial powers. Being primarily shareholders, they are like partners with the other shareholders. In that relation, the Directors are regarded as the most active and managing partners and other shareholders as sleeping or dormant partners.

(2) As managing partners, the Directors perform almost all the proprietarily functions like the issue of shares, allotment of shares, making calls, forfeiting shares, etc. However, their acts are not binding on the shareholders or on each other unless the: I Articles provide so.

iii) As trustees:

The Directors are considered as trustees of the company. They stand in a fiduciary relationship with their company. As trustees, the Directors look after the property, money, and other assets of the company. They must account for all the company’s money and property over which they exercise control. They have to make good the loss caused by improper application of money or property of the company.

(iv) As an employee:

The Directors are not the employees of the company because they are only required to attend the Board Meeting and set out the general policy of the company. The full-time officers like Managing Directors, Manager. Secretary, etc. are employees appointed to carry out the day-to-day activities of the company management. However, under the special contract of service, a Director can become a whole-time Director (i.e. employee) of the company. A Director Can be entitled to a share in the profit of a company including a handsome salary.