The law is there to protect the owners of the company. It exists because of the nature of a fiduciary relationship where one person acts on behalf of another.
Power of Directors:
Directors do not have unlimited power. It will be restricted by following things,
– Articles of Association
– Shareholder resolution
– Provision of Law
– Board of Directors
Directors do however have unlimited liability in the sense that even though they may delegate actions to management below, in a legal sense they cannot delegate liability for the outcome.
Duties of Directors:
1) The duty to act in good faith
As long as directors’ motives are honest and they genuinely believe they are acting in the best interests of the company they are normally safe from claims that they should have acted otherwise.
2) The duty of skill and care
This care is a specific fiduciary duty. The law requires a director to use reasonable skill and care in carrying out their tasks.
Penalties to Directors:
Directors who breach duties may face civil action by the company. If the director is in breach:
– Any contract made by the director may be void
– They may be personally liable for damages in compensation for negligence
– They may be forced to restore company property at their own expense.