MANAGEMENT OF A COMPANY

At the end of this Chapter, the student will be expected to:

1. Understand the different organs that are responsible for the management;
2. Analyze and Evaluate the role of members in the management of companies; and
3. Understand the procedures regarding meeting

ORGANS RESPONSIBLE FOR MANAGEMENT OF A COMPANY

The control and management of a co is distributed among its principal officers and these include
the auditors, accountants, Board of Directors, Managing director (if any) and any other officers
of a company. There are basically two organs responsible for the management of a company.
These are: -
 The Members through company meetings and
 The Board of Directors.

MANAGEMENT OF THE COMPANY BY THE MEMBERS AND COMPANY MEETINGS

The Members have an opportunity of influencing the company's management through the
company's meetings. There are 4 types of meetings through which the shareholders can
participate in the affairs of a company.

1. Statutory meeting and statutory report.

These are provided for under Section 137 of the Companies Act which requires A company
limited by shares and every company limited by guarantee and having a share capital shall,
within a period of not less than one month nor more than three months from the date at which
the company is entitled to commence business, hold a general meeting of the members of the
company which shall be called “the statutory meeting”.. The section has 3 basic elements.
 It is a requirement for all companies limited by shares and limited by guarantee
 The meeting is held once in the company's life and never again
 It must be held within one month from the date of the company’s commencement of
business and not before three months elapse after such commencement.

A statutory report must be sent to the members before the meeting is held. This must be 14 days
before the date the meeting is to be held according to Section 137(2) by the directors of the
Company.

Subsection (3) provides that Subject to subsection (2), if the statutory report is forwarded later
than is required by that subsection, it shall, notwithstanding that fact, be taken to have been duly
forwarded if it is so agreed by all the members entitled to attend and vote at the meeting.

Contents of the statutory report

According to section 137 (4) the statutory report shall be certified by not less than two
directors of the company and shall state—
(a) the total number of shares allotted, distinguishing shares allotted as fully or partly paid up or
otherwise than in cash and stating in the case of shares partly paid up, the extent to which they
are so paid up and in either case the consideration for which they have been allotted;

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(b) the total amount of cash received by the company in respect of all shares allotted,
distinguished as described in paragraph (a);
(c) an abstract of the receipts of the company and of the payments made out of them, up to a
date within seven days before the date of the report, exhibiting under the distinctive headings
the receipts of the company from shares and debentures and other sources, the payments made
on them and particulars concerning the balance remaining in hand and an account or estimate of
the preliminary expenses of the company;
(d) the names, postal addresses and descriptions of the directors, auditors, if any, managers, if
any and secretary of the company; and
(e) the particulars of any contract the modification of which is to be submitted to the meeting for
its approval, together with the particulars of the modification or proposed modification.

Subsection 7 provides that the directors shall cause a list showing the names and postal
addresses of the members of the company and the number of shares held by them respectively,
to be produced at the commencement of the meeting and to remain open and accessible to any
member of the company during the continuance of the meeting.

What is discussed in the meeting?

Under subsection 8, the members of the company present at the meeting are free to discuss any
matter relating to the formation of the company or arising out of the statutory report, whether
previous notice has been given or not but no resolution of which notice has not been given in
accordance with the articles may be passed.

Adjournment of the meeting

Under subsection (9) the meeting may adjourn from time to time and at any adjourned meeting
any resolution of which notice has been given in accordance with the articles, either before or
subsequently to the former meeting, may be passed and the adjourned meeting shall have the
same powers as an original meeting.

Default in complying with provisions relating to statutory meeting

Under subsection (10) where there is a default in complying with this section, every director of
the company who knowingly and willfully commits a default or in the case of default by the
company, every officer of the company who is in default is liable to a fine of twenty five currency
points.

Under subsection (11) it is provided that this section does not apply to a private company but
applies to a company which was a private company before becoming a public

2. Annual general meeting.

This is a meeting that is held once every year.

Who holds this meeting?

Section 138 (1) provides that a Public company shall in each year hold a general meeting in
addition to any other meetings in that year and shall specify the meeting as general meeting in
the notices calling it and not more than fifteen months shall elapse between the date of one
annual general meeting of a company and that of the next.
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Subsection (2) provides that a private company may at the requisition of a member hold an
annual general meeting.

When is the meeting held?

The meeting is held once in a year and a year means twelve calendar months and not more than
fifteen months shall elapse between the date of one annual general meeting of a company and
that of the next.
Subsection 3 provides that subject to subsection (1), if a company holds its first annual general
meeting within eighteen months after its incorporation, it need not hold it in the year of its
incorporation or in the following year.

What is discussed in the meeting?

The object of this meeting is to give members an opportunity to meet and participate in the
decision making process of the company at least once a year. This meeting is technically referred
to as an ordinary meeting; the resolutions thereof are ordinary resolutions. This is the most
important meeting of the company and concerns a number of issues e.g. to consider accounts,
balance sheets, reports of directors and auditors, consideration of dividends, appointment of
directors etc.

Default in holding this meeting

Further Section 138 (4) provides that where default is made in holding a meeting of the
company in accordance with subsection (2), the registrar may, on the application of any member
of the company, call or direct the calling of a general meeting of the company and give such
ancillary or consequential directions as the registrar thinks expedient including directions
modifying or supplementing in relation to the calling, holding and conducting of the meeting, the
operation of the company’s articles.

Under subsection (8) where default is made in holding a meeting of the company in accordance
with subsection (1) or in complying with any directions of the registrar under subsection (3), the
company and every officer of the company who is in default are liable to a default fine of twenty
five currency points and if default is made in complying with subsection (4), the company and
every officer of the company who is in default are liable to a default fine of five currency points.

3. Extra-Ordinary general meeting on requisition.

Where there are some burning issues that may not hold on to the next annual general meeting,
then an extra ordinary general meeting may be held. The directors may whenever they think fit
convene an extra ordinary general meeting but in default may be convened on requisition.

Section 139 (1) provides that that the directors of a company, notwithstanding anything in its
articles, shall, on the requisition of the members holding not less than one tenth of the paid up
capital of the company as at the date of the deposit carries the right of voting at general meetings
of the company or in the case of a company not having a share capital, members of the company
representing not less than one tenth of the total voting rights of all the members having that date
a right to vote at general meetings of the company, shall proceed duly to convene an
extraordinary general meeting of the company.
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Under subsection (2) the requisition must state the objects of the meeting and must be signed
by the requisitionists and deposited at the registered office of the company and may consist of
several documents in like form each signed by one or more requisitionists.

Under subsection (3) it is provides that where the directors do not within twenty one days after
the deposit of the requisition under subsection (2) held the meeting attended by members
representing more than one half of the total voting rights at a general meeting then after the
expiration of three months after the date of deposit of the requisition the meeting shall not be
held.

Under subsection (4) a meeting convened under this section shall be convened in the same
manner as nearly as possible as that in which meetings are to be convened by the directors.

Under subsection (5) any reasonable expenses incurred by the requisionists by reason of the
failure of the directors duly to convene a meeting shall be repaid to the requisitionists by the
company and any sum regard shall be retained by the company out of any sums due or to
become due from the company by way of fees or other remuneration, in respect of their services
to the directors who are in default.

Under subsection (6) for the purposes of this section, the directors shall, in the case of a
meeting at which a resolution is to be proposed as a special resolution, be taken not to have duly
convened the meeting if they do not give the notice required by section 149.

All meetings other than the AGM are referred to as extra- ordinary meetings. The resolutions
passed at an extra-ordinary meeting are referred to as special resolutions

4. General meeting convened under Court Orders section 142

The section provides that under section 142 (1) that if, for any reason it is impracticable to call
a meeting in any manner in which the meeting may be called or conduct the meeting as per the
Articles, the court may on its own motion or application by a director or member entitled to
attend and vote at the meeting order that a meeting be called, held and conducted in such
manner as the court thinks fit.

Subsection (2) provides that where an order is made under this section the court may give such
ancillary or consequential directions as it thinks expedient and it is declared that the directions
that may be given under this subsection include a direction that one member of the company
present in person or by proxy shall be taken to constitute a meeting.

Subsection (3) provides that a meeting called, held and conducted in accordance with an order
under subsection (1) shall for all purposes be taken to be a meeting of the company duly called,
held and conducted.

If for any reason it is impractical to call a meeting the court may order that a meeting be called,
held and conducted in such a manner as the court thinks fit.
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The courts have used this discretion and power to prevent majority shareholders or persons in
control oppressing the minority or where individual shareholders use the quorum provisions
under the articles as a tool to delay or defeat meetings.

However, it must be noted that this jurisdiction and discretion only applies whenever as a
practical matter the desired meeting can be conducted and only if it is impractical to hold it in
the first place.

In the case of Re Sombrero Ltd (1958) Ch.900, one member was allowed by court to constitute
a meeting. The court observed that in determining whether it is impracticable to call and
convene, the court must examine the circumstances of each particular case and ask itself
whether as a practical matter the desired meeting can be called, convened and or conducted. In
this case, two directors who were also shareholders absented themselves to defeat the quorum
of a meeting which was meant to pass a resolution removing them from office. The court pointed
out that this application was proper since the applicant (the majority shareholder) had a
statutory right to remove directors

In the case of Re Air Rep.International Ltd (Companies Cause No 3 of 1984), there were only
2 shareholders and one complained that his co-shareholder had never stepped into the
company's premises for the previous two years. The court asked him to make an application
requesting to be allowed to convene a general meeting, which he dully did and it was granted.

How can a person i.e. shareholder, convince the court that it has been impractical to convene
such a meeting?
 By showing that the directors have bought up the shares.
 By showing that the directors are the only members of the company.

PROCEDURE, ATTENDANCE AND QUORUM AT MEETINGS

Every company's meeting must be convened by a notice given to all those who are entitled to
attend and vote 21 days before the general meeting.
Section 141 gives the General provisions as to meetings and votes. It provides that; the
following provisions shall have effect in so far as the articles of the company do not make other
provision for the purpose—
(a) notice of the meeting of a company shall be served on every member of the company in the
manner in which notices are required to be served by Table A and for the purpose of this
paragraph, the expression "Table A" means that Table as for the time being in force;
(b) two or more members holding not less than one tenth of the issued share capital or, if the
company has not a share capital, not less than five per cent in number of the members of the
company may call a meeting;
(c) in the case of a private company two members, and in the case of any other company three
members, personally present shall form a quorum;
(d) any member elected by the members present at a meeting may be chairperson of the
meeting;

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(e) in the case of a company originally having a share capital, every member shall have one vote
in respect of each share or each twenty currency points of stock held by him or her and in any
other case every member shall have one vote.

NOTICES
Form and Duration of Notice
Section 140 (1) and (2) of the Companies Act and Article 50 (1) of Table A provides that a
general meeting must be called by not less than 21 days written notice.

Exception
Section 140 (4) (a) and Article 50 (3) of Table A provides that all members entitled to attend
and vote must consent and agree to a shorter notice. A meeting convened by consent of all
members shall be deemed to have been duly called and convened. The bottom line under this
section generally is adequate notice must be given. In the case of RE ARCE DUFF & CO LTD
(1960) 1 WLR 1014 it was held that the resolutions passed at a meeting where shorter notice
than 21 days was given must be qualified and a note put that a resolution was passed.

In re-engineering works ltd (1920) 1 ch 466 the court held that it is incompetent for all the
shareholders to waive the requirements as regards to notice of meetings.

Service of Notice
Section 141 (a) provides that notice of the meeting of a company shall be served on every
member of the company.
Accordingly, if notice is not given to every person entitled to notice, the meeting is invalid and
any resolution passed thereof will be void and of no legal effect. In the case of YOUNG Vs LADIES
IMPERIAL CLUB LTD (1920) 2 KB 523 the Committee of a club met and passed a resolution
expelling another member from the club but that member was not summoned or invited for the
meeting since she had previously informed the chairman that she would not be in position to
attend. This omission invalidated the meeting.

Omission to give notice

Most AOA provide for situations where notice was not given, where there was accidental
omission or general non receipt of notice. In such a situation, the meeting shall be valid and the
resolutions passed thereof valid resolutions.

Article 51 of Table A provides that accidental omission to give notice or non-receipt of notice
shall not invalidate the proceedings of a meeting.

The onus of proof is on the person claiming that the meeting is valid to show that the omission
was accidental and not deliberate. In RE WEST CANADIAN COLLIERIES [1962] CH 370 it was
held that the omission to give notice of a meeting to a few members because the plate of the
these members was inadvertently kept out of the machine when the envelopes were being
addressed was held to be accidental omission within the meaning of A.51

However, in MUSSELWHITE Vs MUSSELWHITE & SONS LTD (1962) CH 964 the omission to
give notice of a general meeting to the unpaid vendors of shares but who were on the register of
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members and who the directors believed were no longer members was declared an error of law
and not an accidental omission.

Content of Notice
Article 50 (2) of Table A provides that the notice must disclose the place, day, hour of the
meeting and in case of special business, the general nature of that business.
If any shareholder is absent from the meeting whose notice had not fully disclosed the agenda,
he can seek a court order to declare such a meeting null and void. This is because the
shareholder has a legal right to get notified duly or clearly of an incumbent general meeting.
However, directors have no legal right to attend general meetings but can only do so as
administrators and therefore, matters discussed cannot be invalidated by any director.

In the case of HENDERSON Vs BANK OF AUSTRO ASIA [1890] 45 CH 330 the court held that
notice must be sufficiently full and specific to enable the shareholders receiving it to decide
whether to attend or not.

The effect of this section is the preclusion of general circulars which do not give a fair warning of
what is likely to transpire. However, if a meeting goes beyond what is specified in the agenda but
is within the limits of any other business then that meeting is valid and the resolutions thereof.

However, if a meeting goes beyond what is specified in the agenda (notice) but it is still within
the limits of any other business then that meeting is valid and the resolutions thereof.

In CHOPPINGTON [1944] 1 ALLER 462 the notice had the business as to elect directors. The
chairman refused a motion to fill up the vacant posts of the directors. The court held that the
refusal was wrong since the notice specified the general nature of business as election of
directors.

In BAILLIE Vs ORIENTAL TELEPHONE [1915] 1 CL 503 a resolution was declared not binding
since the notice was insufficient.

QUORUM
No business is to be transacted at the general meeting unless a quorum of members is present.
Technically speaking, quorum refers to an effective quorum i.e. members qualified to take part in
and decide upon questions before the meeting. In addition, if the articles require the quorum of
members to be present, without any additions or qualifications, then the word present means
present in person.
Section 141 (c) in the case of a private company two members, and in the case of any other
company three members, personally present shall form a quorum;.

The word meeting prima facie means the coming together of more than one person. Accordingly,
one person can’t constitute a meeting even where he attends in more than one capacity or holds
proxies for other persons.

Effect of Lack of quorum

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Article 54 (1) of Table A provides that if for a meeting requisitioned by members the quorum is
not present within half an hour, the meeting shall stand adjourned to the same day in the next
week, same time and place or such other day and such other time and place as the directors may
determine.

Article 54 (2) of Table A provides if at the adjourned meeting the quorum is not present, within
half an hour from the time appointed for the meeting, the members present shall form a
quorum.

Appointment of Chairperson
Section 141 (d) provides that any member elected by the members present at a meeting may be
chairperson of the meeting. A person elected as a chairperson has the responsibility of presiding
over meetings of the company. The CA or Table A does not provide for the qualifications of the
chairperson hence the general meeting has the power to appoint any person as a chairperson.

Article 55 (1) of Table A provides that the chairperson of the board of directors shall preside at
every general meeting of the company.

Article 55 (2) of Table A provides that if there is no chairperson or if he or she is not present
within fifteen minutes of the time appointed for the meeting or is unwilling to act, the directors
present shall elect one of their members to be appointed chairperson of the meeting.

Article 56 of Table A provides that if no director is willing to act as chairperson or if no director

is present within fifteen minutes after the time appointed for holding the meeting, the members
present shall choose one of their member to be chairperson of the meeting.

There are specific attributes but no legal requirements e.g. you must appoint a person who is
honest and fair in his her dealings, reputable character, beyond reproach etc.

Under the law, a chairperson has the following duties:

- To preserve order,
- To preside over meetings and ensure that the proceedings are regulry conducted
- To take care that the sense of the meeting is properly ascertained
- To decide important questions and whether a proxy is valid, time keeoing, alw and
order, has to be impartial and handle issues of adjournment
- Regulation of speakers

Conduct of meetings
It should be noted that subject to the provisions in the AOA and CA the way in which the
business at the meeting is conducted is decided by the meeting itself and this is the principle in
the case of CARUTH Vs ICI LTD [1931] AC 707 at 761

In BYING Vs LONDON LIFE ASS, the court held that a meeting could be held in more than one
room provided all the rooms are connected with audio and visual links so that the people in the

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rooms can see and hear what is going on in other rooms and that due steps must be taken to
direct members who are unable to get into the main meeting room.

Voting at a company meeting

The essence of voting is clear in company matters. However, as general rule, a shareholder has
the right to vote and to vote how he/she wishes. However, there are instances where the court
may nullify a members voting if it was not bonafide and or in the interest of the company.

Methods of Voting
 By show of hands
Article 58 (1) of Table A provides that at any general meeting, a resolution put in a meeting
shall be decided by show of hands. Under the vote on a show of hands, each member is entitled
to vote in person and has one vote i.e. one man one vote and no proxies.

No member shall vote at any meeting either in person or by proxy unless he/she is paid up for at
least a share.

A director who is also a shareholder can vote on any question even if he has a personal interest
but he must declare that interest.

Article 60 of Table A provides that where the votes are equal, the chairperson shall have a
casting vote.

 By Poll
This is the voting on the strength of the shareholding. The public policy behind voting by poll is
that voting on a show of hands may first of all not reflect the wishes of the company since the
proxy votes are not counted. However, a member has a right to demand for a poll and it’s a
statutory right under S. 144 CA any provision contained in the AOA shall be void in so far as it
excludes the right to demand for a poll.

Article 58 (1) provides that a poll may be demanded but by the following people;

 Chairperson
 Atleast three members present in person or by proxy
 By any member or members present in person or by proxy and representing not less than
one tenth of the total voting rights or all members havng the right to vote at the meeting, or
 By any member or members holding shares in the company conferring a right to vote at the
meeting being shares on which an aggregate sum has been paid up equal to not less than one
tenth of the total sum paid up on all the shares conferring the right

Article 58 (3) provides that a demand for a poll may be withdrawn.

Section 144 (1) provides that a provision in a company’s articles is void in so far as it would
have the effect—
(a) of excluding the right to demand a poll at a general meeting on any question other than the
election of the chairperson of the meeting or the adjournment of the meeting; or
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(b) of making ineffective a demand for a poll on the question which is made—
(i) by not less than five members having the right to vote at the meeting;
(ii) by a member or members representing not less than one tenth of the total voting rights of all
the members having the right to vote at the meeting; or
(iii) by a member or members holding shares in the company conferring a right to vote at the
meeting, being shares on which an aggregate sum has been paid up equal to not less than one
tenth of the total sum paid up on all shares conferring that right.

Subsection (2) provides that the instrument appointing a proxy to vote at a meeting of a
company shall be taken also to confer authority to demand or join in demanding a poll and for
the purposes of subsection (1) a demand by a person as proxy for a member shall be the same as
a demand by the member.

 By Proxy
Section 143 (1) provides that a member of a company entitled to attend and vote at a meeting
of the company is entitled to appoint another person whether a member or not as his or her
proxy to attend and vote instead of him or her and a proxy appointed to attend and vote instead
of a member of a private company shall also have the same right as the member to speak at the
meeting.

Subsection (2) provides that Subject to subsection (1), unless the articles otherwise provide—
(a) that subsection shall not apply in the case of a company not having a share capital;
(b) member of a private company shall not be entitled to appoint more than one proxy to attend
on the same occasion; and
(c) a proxy shall not be entitled to vote except on a poll.

Who can appoint a proxy and who can be appointed a proxy

Subsection (3) provides that every notice calling a meeting of a company having a share capital,
shall state clearly that a member entitled to attend and vote is entitled to appoint a proxy or,
where that is allowed, one or more proxies to attend and vote instead of him or her and that a
proxy need not also be a member.

Default in complying with the above provisions

Subsection (4) provides that where there is default in complying with subsection (2) in respect
of any meeting, every officer of the company who is in default is liable to a default fine of twenty
five currency points.

Subsection (5) provides that a provision in a company’s articles is void in so far as it would
have the effect of requiring the instrument appointing a proxy or any other document necessary
to show the validity of or otherwise relating to the appointment of a proxy or any other
document necessary to show the validity of or otherwise relating to the appointment of a proxy,
to be received by the company or any other person more than forty eight hours before a meeting
or adjourned meeting in order that the appointment may be effective at the meeting.

Subsection (6) provides that where for the purpose of any meeting of a company, invitations to
appoint as proxy a person or one of a number of persons specified in the invitations are issued at
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the company’s expense to only some of the members entitled to be sent a notice of the meeting
and to vote by proxy, every officer of the company who knowingly and willfully authorises or
permits their issue is liable to a default fine of twenty five currency points.

Subsection (7) provides that Subject to subsection (5), an officer shall not be liable under that
subsection by reason only of the issue to a member at his or her request in writing of a form of
appointment naming the proxy or of a list of persons willing to act as proxy if the form or list is
available on request in writing to every member entitled to vote at the meeting by proxy.

Subsection (8) provides that this section does apply to meetings of any class of members of a
company as it applies to general meetings of the company.

A proxy in Company law is a document which authorises somebody to attend a meeting on

behalf of a shareholder. That appointment may or may not be a shareholder of the company.

 Voting Agreements
This is where shareholders enter into an arrangement to vote in a particular person or not to
vote against a particular person. In such a situation where a person has entered into an
agreement, his right to vote contrary to the agreement is curtailed. The public policy behind
voting agreements is that courts should not interfere with the freedom of competent parties to
make their own contract. Unlike ordinary contracts, a voting agreement does not bind
successors in title.

MINUTES
Section 152 (1) of the Companies Act provides that every company shall cause minutes of every
proceedings of all meetings to be kept in books for that purpose. Under subsection (2) it
provides that the minutes must be signed by the chairperson of that meeting or the next meeting
at which they are passed. Why? Because minutes are evidence of proceedings but unless
specifically specified in the articles the minutes are not conclusive evidence of what transpired.
Thus if a resolution was passed and was not captured in the minutes, extrinsic evidence can be
adduced. In the case of RE FIRE PROOF DOORS [1916] 2 CH 142 it was held that where the
articles expressly provide that minutes duly signed shall be conclusive evidence without further
proof, extrinsic evidence cannot be called to contradict the minutes except in the event of fraud.

Subsection (3) provides that where minutes have been made in accordance with the
proceedings at any general meeting of the company or meeting of directors then, until the
contrary is proved, the meeting shall be taken to have been duly held and convened and all
proceedings had to have been duly had and all appointments of directors or liquidators shall be
taken to be valid.

Subsection (4) provides that where a company fails to comply with subsection (1), the company
and every officer of the company who is in default is liable to a default fine of twenty five
currency points.

Under section 153, books containing minutes shall be kept at the registered office of the
company and shall be open to inspection of any member without charge. Inspections may be
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restricted to not less than 2 hours a day. A member may be furnished with a copy of the minutes
within 14 days from the date of request of the minutes. Under subsection 4 where any
inspection required under this section is refused or if any copy required under this section is not
sent within the proper time, the company and every officer of the company who is in default is
liable in respect of each offence to a fine of twenty five currency points and in case of a
continuing default, to a further fine of five currency points in respect of each day the default
continues.
Under subsection (5) In the case of a refusal or default referred to in subsection (4), the court
may, by order compel an immediate inspection of the books in respect of all proceedings of
general meetings or direct that the copies required shall be sent to the persons requiring them.

Resolutions:
The Companies Act provides for three types of resolutions at meetings, namely, ordinary, extra-
ordinary and special.

An ordinary resolution is not defined by the Act but it is a resolution passed by a simple
majority of those voting. It is employed with respect to matters, which do not require an
extraordinary or special resolution under the articles or the Act like resolutions of the AGM.

An extra-ordinary resolution is not defined by the Act and is passed by a three quarters
majority at a general meeting of which notice specifying the intention to propose the resolution
as an extraordinary resolution is required for specific matters relating to winding up, although
the articles may require one in other cases such as the modification of class rights at class
meetings.

A special resolution
Section 148 (1) provides that a resolution shall be a special resolution when it has been passed
by a majority of not less than three fourths of such members as, being entitled so to do, vote in
person or, where proxies are allowed, by proxy, at a general meeting of which notice specifying
the intention to propose the resolution as a special resolution has been duly given.

Subsection (2) provides that Subject to subsection (1), if it is agreed by a majority in number of
the members having the right to attend and vote at a meeting referred to in subsection (1), being
a majority together holding not less than ninety five per cent in nominal value of the shares
giving that right or in the case of a company not having a share capital, together representing not
less than ninety five percent of the total voting rights at that meeting of all the members, a
resolution may be proposed and passed as a special resolution at a meeting of which less than
twenty one days’ notice has been given.

Subsection (3) provides that at any meeting at which a special resolution is submitted to be
passed, a declaration of the chairperson that the resolution is carried shall, unless a poll is
demanded, be conclusive evidence of the fact without proof of the number or proportion of the
votes recorded in favour of or against the resolution.

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Subsection (4) provides that in computing the majority on a poll demanded on the question
that a special resolution be passed, reference shall be had to the number of votes cast for and
against the resolution.

Subsection (5) provides that for the purposes of this section, notice of a meeting shall be taken
to be duly given and the meeting to be duly held when the notice is given and the meeting held in
the manner provided by this Act or the articles.

MANAGEMENT OF A COMPANY THROUGH THE BOARD OF DIRECTORS

At the end of this Chapter, the student will be expected to:

1. Understand the meaning of a director and the different types of directors;
2. Understand the procedure of appointment of directors;
3. Understand and analyze the role of nominee and alternate directors;
4. Understand the qualifications and disqualifications to the position of director;
5. Understand the procedure for removal of directors;
6. Analyze and Evaluate the role of Directors in the management of companies; and
7. Understand the procedures regarding meetings of directors

Management of the Company through Board of Directors

There is no definition of a director whether in the Act or by case law. Nevertheless, S.2 of the Act
states that a director includes any person occupying the position of a director by whatever name
called and shall include a shadow director

Categories of directors
i) defacto director
ii) dejure director

 Defacto directors
These operate or act as directors. A defacto director assumes the office of a director and is held
out as a director by the company. There must be proof or evidence that the person undertook
the functions of the director and discharged those functions and the company was aware. R Vs
CAMPS (1962) EA.403. Camps never kept proper books of accounts, never held AGM’s and was
an unqualified director of a company contrary to S.142. Court held that where the acquisition of
a share qualification is not a condition precedent in the appointment of a director, he may be
appointed and act before he qualifies and his acts as a director are valid if done before he is
bound by law to acquire his qualification share. The East Africa Court further held that as a
matter of law (dejure), he was not a director but as a matter of fact (defacto), he was a director.

 Executive and Non-Executive Directors

Executive directors are directors appointed to manage the day to day affairs of the company e.g.
the Executive Director of PPDA, while Non- Executive directors are not involved in the day to
day management of the company.

 Shadow directors:

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Includes any person occupying the position of director by whatever name called and shall
include a shadow director. Shadow directors operate behind the scenes.

Appointment of Directors
Directors are appointed by a company in a general meeting in conformity with the Articles of
Association. The AOA do usually contain an article on appointment of directors and how to fill
vacant posts of directors. It must be noted that appointment of directors is normally at the AGM.
Unless the Articles empower the board to appoint or co-opt directors, the inherent power to
appoint directors is in the general meeting.

Once directors are appointed, the registrar of companies must be notified. The company fills in a
form called Company Form No 7 which indicates the particulars of the directors.

Number of directors
Section 185 provides that every company other than a private company, registered after the
commencement of this Act shall have at least two directors, and every company registered
before that date other than a private company and every private company shall have at least one
director.

Prohibition of certain persons being sole director or secretary

Section 188 provides that a company shall not—
(a) have as secretary to the company, a corporation the sole director of which is a sole director
of the company; or
(b) have as sole director of the company a corporation the sole director of which is secretary to
the company.

Section 189 provides that a provision requiring or authorising a thing to be done by or to a

director and the secretary shall not be satisfied by its being done by or to the same person acting
both as director and as or in place of, the secretary.

Minimum age for appointment of directors and retirement of directors over the age limit.
Section 196 provides that a person shall not be capable of being appointed a director of a
company if at the time of appointment he or she has not attained the age of eighteen years.

Section 197 (1) provides that a person who is appointed or to his or her knowledge proposed to
be appointed director of a company at a time before he or she has attained the age of eighteen
years shall give notice of his or her age to the company.

Default in complying with the above provisions

Subsection (2) provides that a person who—
(a) fails to give notice of his or her age as required by this section; or
(b) acts as director under any appointment which is invalid by reason of his or her age, commits
an offence and is on conviction liable to a fine not exceeding ten currency points for every day
during which the failure continues or during which he or she continues to act as described in this
subsection.

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Nominee director of a single member company.
Section 186 (1) provides that a single member shall nominate two individuals, one of whom
shall become nominee director in case of death of the single member and the other shall become
alternate nominee director to work as nominee director in case of non-availability of the
nominee director.

Duties of the nominee director

Subsection (2) provides that the nominee director shall—
(a) manage the affairs of the company in case of death of the single member until the transfer of
shares to legal heirs of the single member;
(b) inform the registrar of the death of the single member, provide particulars of the legal heirs
and in case of any impediment report the circumstances seeking directions within fifteen days
after the death of the single member;
(c) transfer the shares to the legal heirs of the single member; and
(d) call the general meeting of the members to elect directors.

Role of the Registrar

Subsection (3) provides that in case of any impediment due to transfer of shares, or election of
directors or any other circumstances, the registrar shall call, or direct the calling of the meeting
of legal heirs, in exercise of the powers conferred by section 138 in such manner as he or she
deems fit and give such directions with regard to election of directors and making alteration in
the articles, if any, and such ancillary and consequential directions as he or she thinks expedient
in relation to calling, holding and conducting of the meeting.

Qualifications of Directors
Section 192 requires that before a person can be appointed a director of a company with share
capital, he must have:
 signed and delivered for registration his consent to act as a director.
 He or she has;
I. Signed the memorandum for a number of shares not less than his or her
qualification, if any;
II. taken from the company and paid or agreed to pay for his or her qualification
shares, if any
III. signed and delivered to the registrar for registration an undertaking in writing
to take from the company and pay for his or her qualification shares, if any; or
IV. made and delivered to the registrar for registration a statutory declaration to
the effect that a number of shares, not less than his or her qualification, if any,
are registered in his or her name.

subsection (4) provides that on the application for registration of the memorandum and
articles of a company, the applicant shall deliver to the registrar a list of the persons who have
consented to be directors of the company and, if the list contains the name of any person who
has not consented, the applicant commits an offence and is liable on conviction to a fine not
exceeding five hundred currency points.

Exclusion of this requirement

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Subsection (5) provides that this section does not apply to—
(a) company not having a share capital;
(b) a private company;
(c) a company which was a private company before becoming a public company; or
(d) a prospectus issued by or on behalf of a company after the expiration of one year from the
date on which the company was entitled to commence business.

Duration within which to acquire Share qualifications of directors

Section 193 (1) provides that Without prejudice to the restrictions imposed by section 192, it
shall be the duty of every director who is by the articles of the company required to hold a
specified share qualification and who is not already qualified, to obtain his or her qualification
within two months after his or her appointment or such shorter time as may be fixed by the
articles.

Default in acquiring qualification shares

Section 193 (3) provides that the office of director of a company shall be vacated if the director
does not within such shorter time as may be fixed by the articles, obtain his or her qualification
or if after the expiration of that period or shorter time he or she ceases at any time to hold his or
her qualification.

Subsection (4) provides that a person vacating office under this section shall be incapable of
being re-appointed director of the company until he or she has obtained his or her qualification.

Subsection (5) provides that where after the expiration of the period or shorter time any
unqualified person acts as a director of the company, he or she commits an offence and is liable
on conviction to a fine not exceeding fifty currency points for every day between the expiration
of the period or shorter time or the day on which he or she ceased to be qualified as the case may
be and the last day on which it is proved that he or she acted as a director.

Disqualification of directors.
Section 199 (1) provides that a person shall be disqualified from acting as a director for a
period of three years if he or she fails to—
(a) keep proper accounting records;
(b) prepare and file accounts;
(c) send returns to registrar;
(d) file tax returns and pay tax; or
(r) allows a company to trade while insolvent
(2) A person disqualified as a director shall not—
(a) be a director of any company;
(b) act as a director before the expiry of the disqualification period;
(c) influence the running of a company through the directors;
(d) be involved in the formation of a new company;
(e) act in a way that promotes a company;

Article 88 of Table A provides for disqualification of directors under the following grounds;

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(a) ceases to be a director by virtue of section 195 of the Act (section 195 provides for removal
of directors), or
(b) becomes bankrupt or
(c) becomes prohibited from being a director by reason or any order made under section 201 of
the Act (section 201 is discussed below) or
(d) becomes of unsound mind
(e) resigns his/her office by notice in writing to the company or
(f) is for more than six months absent without permission of the directors from meetings of the
directors during that period

Dismissal/Removal of Directors
The CA has laid down procedures to be followed when dismissing a director. Before a director is
dismissed/removed he must be given a special notice for the purpose. It is not an ordinary
letter; reasons for the dismissal must be given.

Section 195 (1) and Article 96 (1) of Table A provides that a company may by ordinary
resolution remove a director before the expiration of his or her period of office, notwithstanding
anything in its articles or in any agreement between the company and the director but this
subsection shall not in the case of a private company authorise the removal of a director holding
office for life at the commencement of this Act whether or not subject to retirement under an
age-limited by virtue of the articles or otherwise.

Procedure for removal of director

Subsection (2) provides that Special notice shall be required of any resolution to remove a
director under this section or to appoint somebody instead of a director so removed at the
meeting at which he or she is removed.
In BUGERERE GROWERS Vs SEBADDUKA, the court pointed out that the effect of the provision
with regard to special notice is very important and as long as special notice has been made it
does not matter whether the company convenes the extra-ordinary general meeting within one
week.

Subsection (3) provides that on receipt of notice of an intended resolution to remove a director
under this section the company shall send a copy of the notice to the director concerned and the
director whether or not he or she is a member of the company shall be entitled to be heard on
the resolution at the meeting.

Subsection (4) provides that where notice is given of an intended resolution to remove a
director under this section and the director concerned makes with respect to it representations
in writing to the company in respect of the intended resolution and requests their notification to
members of the company, the company shall as soon as practicable—
(a) in any notice of the resolution given to members of the company state the fact of the
representation having been made; and
(b) send a copy of the representations to every member of the company to whom notice of the
meeting is sent whether before or after receipt of the representations by the company.

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Subsection (5) provides that where a copy of the representations is not sent as required by
subsection (3) because it was received too late or because of the company’s default, the director
may without prejudice to his or her right to be heard orally require that the representations
shall be read out at the meeting, except that copies of the representations need not be sent out
and the representation need not be read out at the meeting if, on the application either of the
company or of any other person who claims to be aggrieved, the court is satisfied that the rights
conferred by this section are being abused to secure needless publicity for defamatory matter.

Subsection (6) provides that the court may in the circumstances described in subsection (5)
order the company’s costs on an application under this section to be paid in whole or in part by
the director, notwithstanding that he or she is not a party to the application.

Subsection (7) and Article 97 (1) of Table A provides that a vacancy created by the removal of
a director under this section, if not filled at the meeting at which the director is removed, may be
filled as a casual vacancy.

Subsection (8) and Article 97 (3) of Table A provides that a person appointed director in place
of a person removed under this section shall be treated, for the purpose of determining the time
at which he or she or any other director is to retire as if he or she had become director on the
day on which the person in whose place he or she is appointed was last appointed a director.

Subsection (9) provides that this section does not deprive a person removed under this section
of compensation or damages payable to him or her in respect of the termination of his or her
appointment as director or of any appointment terminating with that as director or as
derogating from any power to remove a director which may exist apart from this section.

Section 191 provides that the acts of a director or manager shall be valid notwithstanding any
defect that may afterwards be discovered in his or her appointment or qualification.

Remuneration of Directors
It is the law that directors have no right of payment for their services while performing their
functions thus a director has no automatic right to remuneration and as it was emphasized in Re
George Newman & Co. (1895) 1 ch.674, the directors have no right to be paid for their services
and cannot pay themselves or each other or make presents to themselves out of the company's
assets unless authorised so to do by the instrument which regulates the company or by the
shareholders at a properly convened meeting.

Legal holding of the holding in the above case

i) Directors have no automatic right to remuneration/ to be paid
ii) Payment can only be made if there is a provision within the Articles or where there is
a resolution of a company meeting

Proceedings of BOD
The rule is that directors must act collectively and any director who is prevented from carrying
out his duties can seek an injunction from court to restrain his co-directors.

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Article 98 (1) of Table A provides that the directors may meet together for the dispatch of
business, adjourn and otherwise regulate their meetings as they think fit.

However, there is no legal requirement that in the discharge of their duties, directors must meet
formally. The mode of meeting is said to have been agreed upon as implied by Barrow Vs Porter
(1914) 1 ch.895. In this case, the company had only 2 directors who developed personal
differences to the extent that they could no longer meet. One director, staying in town wanted to
carry out a transaction. He waited for the other village director at the railway station and told
him about an incumbent meeting which the other one never agreed with. The town director met
alone and elaborated on many issues and purported to have resolved together with the director
in the village. The Court held any of those resolutions that the town director purported to pass
invalid because the directors never agreed on the mode of the meeting.

Voting
Article 98 (2) of Table A provides that decisions shall be arrived at by a majority of the votes.

Article 98 (3) of Table A provides that where there is an inequality of votes, the chairperson
shall have a second or casting vote.

Who calls for the meeting?

Article 98 (4) of Table A provides that a director or secretary at the requisition of a director
shall at any time summon a meeting of the directors.

Notice of meeting
Article 98 (5) of Table A provides that it is not necessary to give notice of a meeting of
directors to any director who is for the time being absent from Uganda.

Quroum
Article 99 of Table A provides that the quorum for the transaction of the business of the
directors may be fixed by the directors and if not fixed the quorum is two.

In-case of vacancy
Article 100 of Table A provides that the continuing directors may act notwithstanding any
vacancy in their body, but, if and so long as their number is reduced below the number fixed by
or under the regulations of the company as the necessary quorum of directors, the continuing
directors or director may act for the purpose of increasing the number of directors to that
number or of summoning a general meeting of the company but for no other purpose.

Chairperson
Article 101 of Table A provides that the directors may elect a chairperson of their meetings and
determine the period for which he or she is to hold office, but of no chairperson is elected, or if at
any meeting the chairperson is not present within five minutes after the time appointed for
holding the meeting, the directors present may choose one of their number to be a chairperson
of the meeting.

Delegation of powers and duties

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Directors have no right to delegate unless authorized by the Articles of Association. Article 102
(1) of Table A provides that directors may delegate any of their powers to committees
consisting of such member or members of their body as they think fit.

Article 102 (1) of Table A provides that a committee formed under sub regulation (1) shall, in
the exercise of the powers delegated conform to any regulations that may be imposed on it by
the directors.

Managing Director
Article 107 (1) of Table A provides that the directors may from time to time appoint one or
more of their fellow directors to the office of the managing director for such period and on such
terms as they think fit, and subject to the terms of any agreement entered into in any particular
case, may revoke the appointment.

Article 107 (2) of Table A provides that a director appointed under subsection (1) shall not
while holding office be subject to retirement by rotation or be taken into account in determining
the rotation of retirement of directors, but his or her appointment shall be automatically
determined if he or she ceases from any cause to be a director.

Article 108 of Table A provides that a managing director shall receive such remuneration
whether by way of salary, commission or participation in profits or partly in one way and partly
in another as the directors may determine.

Article 109 of Table A provides that the directors may entrust to and confer upon a managing
director any of the powers exercisable by them upon such terms and conditions and with such
restrictions as they may think fit, and either collaterally with or to the exclusion of their powers
and may from time to time revoke, withdraw alter or vary all or any of those powers.

Resolution of directors
Article 106 of Table A provides that a resolution in writing, signed by all the directors for the
time being entitled to receive notice of a meeting of directors is valid and effectual as if it had
been passed at a meeting duly convened and held.

Rotation
Further, good corporate governance provides for rotation of directors and most AOA do provide
for rotation. Rotation is the process where directors retire to give other members a chance to
participate in the management of the company.

Article 89 of Table A provides that at the first annual general meeting of the company all the
directors shall retire from office and at the annual general meeting in every subsequent year one
third of the directors for the time being or if their number is not three or a multiple of three then
the number to one third shall retire from office.

Procedure regarding rotation

Article 90 of Table A provides that the directors to retire in every year shall be those who have
been longest in office since their last election but as between persons who became directors on
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Company Law Notes
the same day those to retire shall unless they otherwise agree among themselves be determined
by lot.

Article 91 of Table A provides that a retiring director shall be eligible for re-election.

Conflict Between Directors and Shareholders

As between shareholders and directors, the issue of who has the final say in the management of
the company will depend on the articles of association. Where the company adopts Article 80 of
Table A, the Articles provide that the business of the company shall be managed by the Board of
Directors i.e. shareholders cannot interfere in such management unless they are specifically
empowered by the articles on such issue.

THE DUTIES OF DIRECTORS

Common law developed duties and concepts which vested upon directors with specific
responsibilities. These responsibilities revolve around the directors’ role in the management of
the assets of the company on behalf of the other shareholders.

In addition, the responsibilities also took into account the fact that the company was recognized
as a separate entity from its members. Accordingly, directors were viewed as agents of the
shareholders and as such, they also became trustees for the shareholders.

In light of the aforesaid, the board of directors was seen as fiduciaries and as such, principles of
agency and the law of trust had to be applied to directors. A fiduciary is a person in a position of
confidence or trust. He has a duty of loyalty and must act in good faith in the interest of a person
who depends on the fiduciary to act on his/her behalf. A fiduciary must also act with care on
behalf of the person(s) for whom he is a fiduciary.

There are other corresponding duties that developed in corporate law and these duties
constitute further duties of directors but they all rotate around the view of consideration that a
director is a fiduciary.

As far as directors are concerned, they have two duties to discharge in respect of a company.
1. The duty of skill and care
2. The duty of good faith

Duty of Skill and Care

There is no criteria for measuring the standard of duty of skill and care expected of a director
and consequently this will depend on the circumstances of each case. Nevertheless, courts have
tried to set some guidelines as to what these duties entail. In Re City Equitable Fire Insurance
Co. Ltd, the directors left the company's management to the Managing Director and as a result, a
number of the company's assets disappeared and a number of misleading items were entered
into the books.

While holding the directors liable for breach of duty of skill and care, the court laid down two
criteria against which the standard of duty of a director must be judged.
 It pointed out that we have to look at the nature of a company's business. Where such a
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 company is a small concern, the standard of duty expected of a director is not as high as
in a big company.
 The mode in which the company's work is distributed among various officers has to be
determined e.g. directors of operations, finance, etc. Where the company's operations are
divided among many directors duty of skill and care is higher than otherwise.

The Common law standard of care is a lenient standard and at times it is impossible to find a
party liable for this breach of duty of care. In RE CARDIKK SAVINGS BANK [1892] 2 CH 100,
Mr Bute had become a director at the age of 6. He did not attend meetings until he was 27.
Financial difficulties occurred at the Caddik savings bank and the liquidator sought for
compensation from Bute for the imprudent decisions that led to the downfall of the bank. The
court held that Bute was not liable for his failure to attend the company meetings. It further held
that directors are not responsible for fraud perpetuated in the company and that the degree of
care required of a director is that which is expected to be taken in the particular circumstances
and also taking into account the particular directors abilities.

In RE-BRAZILIAN RUBBER PLANTATIONS [1920] a director who was 75 years old and deaf
was required to exercise the degree of care that might be expected of someone who was 75
years old and deaf. In the same case, the degree of care required of a person who proclaimed to
be ignorant of business was the degree of care that would be expected of person who was
ignorant of business. Accordingly, in this case, these two directors were not held responsible for
the fraud in the company.

The duty of good faith

In determining whether or not a director or any other officer has breached his duty of good faith
to the company, we must always remember that the officer stands in a fiduciary relationship to
his company. Whenever a party has an upper hand in any relationship e.g. a Lawyer -client,
doctor-patient, teacher-pupil, trustee-beneficiary, etc in any commercial transaction, we term
this party's position as a fiduciary position and any cheating by this party can be upheld in
courts of law.

The duty of good faith is divided into a number of components.

 Use of directors’ powers.
As agents of the company, directors are supposed to act within the scope of their authority and
must exercise the power vested upon them for a proper purpose. They must identify the purpose
for which the power was given and must use that power for that specific purpose.

If the power was exercised by the directors for a proper purpose the court could proceed to the
next step of analysing whether the exercise for this power was done in good faith and in the best
interest of the company and this analysis has been referred to as the proper analysis test.

This is the basic principle and is illustrated in the case of HOGG V CRAMPTON LTD (1962) Ch.
64 in which the directors honestly feared that the plaintiff who was the majority shareholder
would take over the company and that this was not in the best interests of the company. The
directors created a share fund in favour of the workers but only the directors could vote in
respect of those shares. Using that voting power, they defeated a take over bid by the majority
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shareholder i.e. plaintiff. It was held that the directors were liable for having utilised their
powers for an improper purpose, which according to the court they wanted to defeat the
majority shareholder. The decision was left for the general meeting, which re-endorsed the
director’s results, and so Hogg never achieved his objectives.

In HOWARD SMITH Vs AMPOL PETROLEUM LTD [1974] 2 WLR 689 the Court instead of
looking out for a specific purpose or set of purposes, it asked whether the purpose for which the
power was exercised would fit within any of the purposes for which the power was likely to
have been given. This duty manifests itself in a number of ways;
- the duty of care does not require or directors are not obliged to give continuous
attention to the companies’ affairs but if directors have information that requires
further investigation but fail to do so, that is a breach of that duty of care. Thus the
standard of care is for a director to be responsible and not passive
- directors act collectively as a board in the supervision of the company. However,
they are not a homogeneous group and their conduct is not to be governed by a
single objective standard and the courts have taken into account personal
knowledge and background of the directors individually and severally eg directors
with superior qualifications or those with experienced business background
cannot stand in the same position as any other director

 Dealing with the company's properties.

Directors have a duty to protect the company's properties and not to expend them anyhow. If
they do so, they are liable to make good the loss. In the case of Re George Newman (Supra) the
term company's property is widely defined to include contracts to which the company is entitled
even if the company has lost no funds at all.
In Cooks Vs Deeks (1916) AC 554 Deeks as a director entered into a contract for himself rather
than the company and cooks co-director sued. It was held that Deeks had breached the duty of
good faith and he paid the proceeds to the company i.e. the profits. The court tried to draw a
distinction in this way i.e. where the company's property belongs to the company both at law
and equity, then the directors cannot appropriate such property. Also where the property
belongs to the company at law but not at equity, again the directors cannot appropriate such
property. A contract entered into by the director is his by law but not by equity if the company
was dealing in such contracts.

 Avoid Conflict of interest/Making Secret Profits out of the Company.

A director must never use his position to make any profits at the expense of the company. The
rule in the case of Aberdeen Rail Co Vs Blaike Bros (1843) AER "R" 249; It was stated that
since a director is in a fiduciary relationship, he is not allowed to enter into any transaction in
which he has a personal interest if to do so will result into a conflict with the interest of the
company. The facts of the case are that AR had a contract to purchase chairs from Blaike Bros
which was a partnership. One of the partners of Blaike bros was a director of AR Co ltd. The
contract required the delivery of 4,100 tons of chairs over a couple of years. AR Co ltd accepted
delivery of about 2,700 tons of chairs but then refused to take delivery of other chairs. Blaike
Bros sought for specific performance or damages in lieu thereof. One of the defences by AR Co
ltd was that the contract was voidable since there was a conflict of interest. The court held that
AR Co ltd could avoid the contract and noted further that the co acts through its agents and that
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Company Law Notes
its agents have a duty not to have their interests and the interests of their principal conflict. That
the rule is strict rule and there can be no question of fairness. Accordingly in this case, the
contract was voidable notwithstanding the fact that Blaike was just one of the 16 directors and
all the other directors voted in favour of the contract.

This rule in Blaike's case has been slightly modified since it was never regarded fair. S 200 and
article 84 of Table A modify the rule, to allow a director make profit out of the transaction
provided he has disclosed his interest to the Board. In the case of Hely Hutchinson (Supra), it
was said that where the director has not disclosed his interest in the contract, this does not make
the contract void but voidable.
Article 84 (1) of Table A provides that a director who is in any way whether directly or
indirectly interested in a contract or proposed contract with the company shall declare the
nature of his or her interest at a meeting of the directors.

 Insider trading.
This is where a well-positioned officer in the company uses sensitive and important information
about that company to his benefit. This is more common in deals concerning securities and
capital markets. In the case of Purcival Vs Wright (1902) I Ch. 421. The directors of the
company bought shares from X whose value stood at £ 12 per share on the open market. The
directors did not disclose to him that negotiations were being conducted for the sale of the
company's shares at a higher price than they were paying X. X sued to have the sale set aside. It
was held that the sale was binding as the directors were under no obligations to disclose the
negotiations to X. That the directors duty of good faith is owed to the company and rather than
individual shareholders and so they failed.

Duties of directors under the Companies Act

Section 198 provides for the duties of the directors shall include the following—
(a) act in a manner that promotes the success of the business of the company;
(b) exercise a degree of skill and care as a reasonable person would do looking after their own
business;
(c) act in good faith in the interests of the company as a whole, and this shall include—
(i) treating all shareholders equally;
(ii) avoiding conflicts of interest;
(iii) declaring any conflicts of interest;
(iv) not making personal profits at the company's expense;
(v) not accepting benefits that will compromise him or her from third parties; and
(d) ensure compliance with this Act and any other law.

Disclosure of Conflict of Interest

Section 218 (1) provides that subject to this section, a director of a company who is in any way,
directly or indirectly, interested in a contract or proposed contract with the company shall
declare the nature of his or her interest at a meeting of the directors of the company.

Subsection (2) provides that in the case of a proposed contract the declaration required by this
section to be made by a director shall be made at the meeting of the directors at which the
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question of entering into the contract is first taken into consideration or if the director was not
at the date of that meeting interested in the proposed contract, at the next meeting of the
directors held after he or she became so interested and in a case where the director becomes
interested in a contract after it is made, the declaration shall be made at the first meeting of the
directors held after the director becomes so interested.

Subsection (3) provides that for purposes of this section, a general notice given to the directors
of a company by a director to the effect that he or she is a member of a specified company or firm
or acts for the company in a specified capacity and is to be regarded as interested in any contract
which may, after the date of the notice, be made with that company or firm or with himself or
herself in that specified capacity shall be taken to be a sufficient declaration of interest in
relation to any contract so made but the notice shall not be of effect unless either it is given at a
meeting of the directors or the director takes reasonable steps to secure that it is brought up and
read at the next meeting of the directors after it is given.

Subsection (4) provides that a director who fails to comply with the above provisions is liable
to a fine not exceeding two hundred currency points.

Subsection (5) provides that nothing in this section shall be taken to prejudice the operation of
any rule of law restricting directors of a company from having any interest in contract with the
company.

Register of directors and secretaries.

Section 228 (1) provides that company shall keep at its registered office a register of its
directors and secretaries.

THE COMPANY SECRETARY

At the end of this Chapter, the student will be expected to:

1. Understand and evaluate the role of the company secretary in regard to companies; and
2. Analyze the duties that the company secretary owes a company.

THE COMPANY SECRETARY

A company secretary is not defined under the Companies Act.

Appointment
Article 110 (1) of Table A provides that the secretary shall be appointed by the directors on
such terms and conditions as they may think fit.
Article 110 (2) of Table A provides that a secretary appointed under subregulation (1) may be
removed by the directors.

Qualifications of company secretaries.

These are provided for under section 190 of the Companies Act.
(1) It is the duty of the directors of a public company to take all reasonable steps to ensure that
the secretary, or each joint secretary of the company is a person who appears to them to have
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the requisite knowledge and experience to discharge the functions of secretary of the company
and who—
(a) is an advocate of the High Court;
(b) is a person who, by virtue of his or her holding or having held any other position or his or her
being a member of any other body, appears to the directors to be capable of discharging those
functions;
(c) is a member of or is qualified to be a member of any of the bodies specified in subsection (2).
(2) The bodies referred to in subsection (1)(c) are—
(a) the Institute of Chartered Public Accountants in Uganda; or
(b) the Institute of Chartered Secretaries and Administrators.

Article 111 of Table A provides that a person shall not be appointed or hold office as secretary
who is;
(a) The sole director of the company
(b) A corporation the sole director of which is the sole director of the company
(c) The sole director or a corporation which is the sole director of the company

Duties and Authority of Company Secretary

There is no clear-cut definition for the secretary's duties but these will depend on the company
in question. Nevertheless, a company's secretary is a very important person or officer of the
company who can legally bind the company in its transactions.
In Panorama Development (Guildford Ltd) Vs Fe Fideli's Furnishings Fabrics Ltd (1971)
3WLR 12, the company's secretary ordered self drive cars using a different companies
letterheads and when the cars arrived, he diverted them to his personal use. When the
defendant company was sued for the price of the cars, it raised a defence that it was not bound
because the secretary who made the order was an insignificant person in a company (depending
on earlier conception of the secretary). The court of appeal rejected the defence and pointed out
that the secretary is an important company officer with in-exhaustive powers, duties and
responsibilities who can make representations on behalf of the company and can enter into
contracts in the day to day running of the company's business. Consequently, because of his
position in the company, the secretary can be held liable not only to his company but also to the
shareholders in civil suits.

Generally the Company Secretary will need to fulfil the following duties;
1. Board Meetings
Facilitating the smooth operation of the company’s formal decision making and reporting
machinery; organising board and board committees meetings (e.g. audit, remuneration,
nomination committees etc.); formulating meeting agendas with the chairman and/or the chief
executive and advising management on content and organisation of memoranda or
presentations for the meeting; collecting, organising and distributing such information,
documents or other papers required for the meeting; ensuring that all meetings are minuted and
that the minute books are maintained with certified copies of the minutes and that all board
committees are properly constituted and provided with clear terms of reference.

2. General Meetings

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Ensuring that an annual general meeting is held in accordance with the requirements of the
Companies Act and the companies’ Articles of Association; obtaining internal and external
agreement to all documentation for circulation to shareholders; preparing and issuing notices of
meetings, and distributing proxy forms; trying to prepare directors for any shareholder
questions and helping them create briefing materials; overseeing the preparations for security
arrangements. At meetings, ensuring that proxy forms are correctly processed and that the
voting is carried out accurately; co-ordinating the administration and minuting of meetings.

3. Memorandum & Articles of Association

Ensuring that the company complies with its Memorandum and Articles of Association and,
drafting and incorporating amendments in accordance with correct procedures.

4. Statutory Registers
Maintaining the following statutory registers:
 members
 company charges
 directors and secretary
 directors’ interests in shares and debentures
 interests in voting shares (substantial holdings & those notified in pursuance of a s.212
notice)
 debenture holders (if applicable).

5. Statutory Returns
Filing information with the Registrar of Companies to report certain changes regarding the
company or to comply with requirements for periodic filing. Of particular importance in this
regard are:
 annual returns
 report & accounts
 amended Memorandum & Articles of Association
 returns of allotments
 notices of appointment, removal & resignation of directors and the secretary
 notices of removal or resignation of the auditors
 change of registered office
 resolutions in accordance with The Companies Act.

6. Report & Accounts

Co-coordinating the publication and distribution of the company’s annual report and accounts
and interim statements, in consultation with the company’s internal and external advisers, in
particular, when preparing the directors’ report.

7. Share Registration
Maintaining the company’s register of members; dealing with transfers and other matters
affecting share-holdings; dealing with queries and requests from shareholders.

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 8. Shareholder Communications
Communicating with the shareholders (e.g. through circulars); arranging payment of dividends
and interest; issuing documentation regarding rights issues and capitalisation issues;
maintaining good general shareholder relations; maintaining good relations with institutional
shareholders and their investment committees.

9. Shareholder Monitoring
Monitoring movements on the register of members to identify any apparent ‘stakebuilding’ in
the company’s shares by potential take-over bidders; making appropriate inquiries of members
as to beneficial ownership of holdings.
10. Share and Capital Issues and Restructuring
Implementing properly authorised changes in the structure of the company’s share and loan
capital; devising, implementing and administering directors’ and employees’ share participation
schemes.

11. Acquisitions, Disposals & Mergers

Participating as a key member of the company team established to implement corporate
acquisitions, disposals and mergers; protecting the company’s interests by ensuring the
effectiveness of all documentation; ensuring that due diligence disclosures enable proper
commercial evaluation prior to completion of a transaction; ensuring that the correct authority
is in place to allow timely execution of documentation.

12. Corporate Governance

Continually reviewing developments in corporate governance; facilitating the proper induction
of directors into their role; advising and assisting the directors with respect to their duties and
responsibilities, in particular compliance with company law and, if applicable, Stock Exchange
requirements; counseling them when preparing presentations and memoranda
13. Non-Executive Directors
Acting as a channel of communication and information for non-executive directors.

14. Company Seal

Ensuring the safe custody and proper use of any company seals.

15. Registered Office

Establishing and administering the registered office; attending to the receipt, co-ordination and
distribution of official correspondence received by the company, sent to its registered office;
ensuring the provision of facilities for the public inspection of company documents.

16. Company Identity

Ensuring that all business letters, notices and other official publications of the company show
the name of the company and any other information as required by the statutes and that
company name plates are displayed in a conspicuous place.

17. Subsidiary Companies

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Ensuring that procedures are in place for the correct administration of subsidiary companies
and that correct information is given to the holding company; maintaining a record of the
group’s structure.

18. General Compliance

Monitoring and laying in place procedures which allow for compliance with relevant regulatory
and legal requirements, particularly under the Companies Acts including legal requirements on
retention of documents; retaining the minimum set of records required for commercial reasons;
ensuring that procedures are in place to allow adequate historical archive to be maintained.

Institution of Suits
Although the Secretary is the officer mainly charged with the duty to institute suits on behalf of
the company as it was held in the earlier judicial view in the decision in Bugerere Coffee
Growers Ltd. V Zukuberi Kikuya and Another [1970] EA 147. These have been held as no
longer good law by the Court of Appeal of Uganda in the case of M/s Tatu Naiga & Emporium V
Uverjee Brothers (U) Ltd (C.A-U), citing United Assurance Co. Ltd V Attorney General, Civil
Appeal No. 1/1986 which overturned those earlier decisions. Any authorised director can give
the necessary authority to institute a suit in the name of the company.

THE AUDITORS OF A COMPANY

At the end of this Chapter the student will be expected to:
1. Understand and evaluate the role of auditors in regard to companies; and
2. Analyze the duties that the auditor owes a company.
3. Analyze the grounds for appointment for and remuneration of auditors;
4. Analyze the grounds and procedure for removal of auditors;
5. Analyze the grounds for the disqualification of auditors

THE AUDITORS OF A COMPANY

The provisions of the Accountants Statute stipulate that a person is not qualified to act as an
auditor unless he is a member of the institute of registered accountants or he is registered as an
associate accountant. It is therefore important that this be read together with what is contained
hereunder for a proper understanding.

Appointment and remuneration of auditors.

Section 167 (1) provides that every company shall at each annual general meeting appoint an
auditor to hold office from the conclusion of that annual general meeting, until the conclusion of
the next, annual general meeting.

Procedure for appointment

Subsection (2) provides that notwithstanding subsection (1), at any annual general meeting a
retiring auditor, however appointed, shall be taken to be reappointed without any resolution
being passed unless—
(a) he or she is not qualified for reappointment;

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(b) a resolution has been passed at that meeting appointing somebody instead of him or her or
providing expressly that he or she shall not be re-appointed; or
(c) he or she has given the company notice in writing of his or her unwillingness to be
reappointed.

Requirement for Notice

Subsection (3) provides that where notice is given of an intended resolution to appoint a
person in place of a retiring auditor and by reason of the death, incapacity or disqualification of
that person, the resolution cannot be proceeded with, the retiring auditor shall not be taken to
be automatically reappointed by virtue of subsection (2).

Power of registrar to appoint auditor

Subsection (4) provides that where at an annual general meeting no auditors are appointed or
re-appointed, the registrar may appoint a person to fill the vacancy.
Subsection (5) provides that the company shall, within one week of the registrar’s power under
subsection (4) becoming exercisable, give the registrar notice of that fact.

Default in compliance with the above provision

Subsection (6) provides that where a company fails to give notice as required by subsection (5),
the company and every officer of the company who is in default is liable to a default fine of
twenty five currency points.

Appointment of first auditors

Subsection (7) provides that subject to this section the first auditors of a company may be
appointed by the directors at any time before the first annual general meeting and the auditors
appointed shall hold office until the conclusion of that meeting.

Removal of auditors
Subsection (8) provides that subject to subsection (7)—
(a) the company may at a general meeting remove any auditors appointed under subsection (7)
and appoint in their place any other persons who have been nominated for appointment by any
member of the company and of whose nomination notice has been given to the members of the
company not less than fourteen days before the date of the meeting; and
(b) if the directors fail to exercise their powers under this subsection, the company in general
meeting may appoint the first auditors and upon the appointment the powers of the directors
shall cease.

Subsection (9) provides that the directors may fill any casual vacancy in the office of auditor
but while any such vacancy continues, the surveying or continuing auditors, if any, may act.

Remuneration of auditors
Subsection (10) provides that the remuneration of the auditors of a company—
(a) in the case of an auditor appointed by the directors or by the registrar may be fixed by the
directors or by the registrar as the case may be; or

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(b) subject to paragraph (a), shall be fixed by the company in a general meeting or in such
manner as the company in a general meeting may determine.

Subsection (11) provides that for the purposes of subsection (8), any sums paid by the
company in respect of the auditors’ expenses shall be taken to be included in the expression
“remuneration.”

Provisions as to resolution relating to appointment and removal of auditors.

Section 168 (1) provides that Special notice shall be required for a resolution at a company’s
annual general meeting appointing a person as auditor other than a retiring auditor or providing
expressly that a retiring auditor shall not be re-appointed.

Subsection (2) provides that on receipt of notice of an intended resolution under subsection (1)
the company shall forthwith send a copy of the notice to the retiring auditor, if any.

Subsection (3) provides that where notice is given of an intended resolution under subsection
(2) and the retiring auditor makes with respect to the intended resolution representations in
writing to the company and requests that the representation be notified to the members of the
company, the company shall, unless the representations are received by it too late for it to do
so—
(a) in any notice of the resolution given to members of the company, state that the
representations have been made; and
(b) send a copy of the representations to every member of the company to whom notice of the
meeting is sent whether before or after receipt of the representations by the company, and if a
copy of the representations is not sent as required by this paragraph because it is received too
late or because company has declared, the auditor may without prejudice to his or her right to
be heard orally require that the representations shall be read out at the meeting.

Subsection (4) provides that subject to subsection (3), copies of the representations need not
be sent out and the representations need not be read out at the meeting if, on the application
either of the company or of any other person who claims to be aggrieved, the court is satisfied
that the rights conferred by this section are being abused to secure needless publicity for
defamatory matter and the court may order the company’s costs on an application under this
section to be paid in whole or in part by the auditor, notwithstanding that he or she is not a party
to the application.

Subsection (5) provides that subsection (3) shall apply to a resolution to remove the first
auditors by virtue of section 167(8) as it applies in relation to a resolution that a retiring auditor
shall not be reappointed.

Disqualifications for appointment as auditor.

Section 169 (1) provides that a person or firm shall not be qualified for appointment as an
auditor of a company unless he or she or in the case of a firm, every partner in the firm is a
member of—
(a) one or more of the professional bodies specified in the Accountants Act; or

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Company Law Notes
(b) the Institute of Certified Public Accountants of Uganda established under the Accountants
Act, or is a person registered as an associate accountant under the Accountants Act.

Subsection (2) provides that none of the following persons shall be qualified for appointment as
auditor of a company—
(a) an officer or servant of the company;
(b) a person who is a partner of or in the employment of an officer or servant of the company; or
(c) a body corporate;

Subsection (3) provides that subsection (2)(b) shall not apply in the case of a private company.

Subsection (4) provides that references in subsection (2) to an officer or servant shall be
construed as not including references to an auditor.

Subsection (5) provides that a person shall also not be qualified for appointment as auditor of a
company if he or she is, by virtue of subsection (2), disqualified for appointment as auditor of
any other body corporate which is that company’s subsidiary or holding company or would be
so disqualified if the body corporate were a company.

Subsection (6) provides that where a person who is not qualified to act is appointed as auditor
of a company that person and the company and every officer in default is liable to a default fine
of twenty five currency points.

Auditors’ report and right of access to books and to attend and be heard at general
meetings.
Section 170 (1) provides that the auditors shall make a report to the members on the accounts
examined by them and on every balance sheet, every profit and loss account and all group
accounts laid before the company in a general meeting during their tenure of office and the
report shall contain statements as to the matters mentioned in the Sixth Schedule to this Act.

Subsection (2) provides that the auditors’ report shall be read before the company in general
meeting and shall be open to inspection by any member.

Subsection (3) provides that every auditor of a company has a right of access at all times to the
books and accounts and vouchers of the company and is entitled to require from the officers of
the company such information and explanation as he or she thinks necessary for the
performance of the duties of the auditors.

Right to receive notice for meeting

Subsection (4) provides that the auditors of a company are entitled to attend any general
meeting of the company and to receive all notices of and other communications relating to any
general meeting which any member of the company is entitled to receive and to be heard at any
general meeting which they attend on any part of the business of the meeting which concerns
them as auditors.

Duties:
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Company Law Notes
Basically, an auditor is to investigate and examine the company's accounts. His report is to be
read at the company's general meeting and an auditor has a right to attend all such relevant
general meetings. The standard of duty has been set by the court in Re London And General
Bank Case that an auditor must be honest and must exercise reasonable care and skill in what
he certifies.

It was further stated in the case that an auditor is not bound to do more than exercise reasonable
care and skill in making inquiries and investigations even in the case of suspicion.

It is the duty of an auditor to bring to bear on the work he has to perform that skill, care and
caution a cautious auditor would use. In the case of Formento (Steeling Area) Vs Selsdon
Fountain Pen Co Ltd (1958)1 ALLER where Lord Denning stated that an auditor is not to be
confined to checking vouchers and adding or subtracting figures but he must take care that
errors are not made and that he should approach his duty suspecting that someone may have
made a mistake and that a check must be taken to ensure that none has been made. That he is
not to be written off as a professional "added-up subtractor". That his vital task is to take care
that errors of omission or commission or down right untruths are not done.

In the case of Hedley Byrne & Co Ltd Vs Hellen Partners Ltd (1964) AC 465 it was stated that
an auditor will not be liable to a third party if he has made a disclaimer to his work. This
disclaimer does not apply in case of the company and for shareholders and criminal liability is
covered in the sections laid above.

In the case of Roberts Vs Hopwood (1925) AC 578 and in Re Ridsell (1914) CH. 59, it was
stated that where an auditor does not have sufficient legal knowledge to deal with a matter as
accountants do, he is entitled to take legal advice. In the case of BEVAN VS WEBB (19010) 2
Ch. 59, it was held that "permission to a man to do an act which he cannot do effectually without
the help of an agent carries with it the right to employ an agent”. According to S.328, an auditor is
an officer of the company. His duty is to ascertain and state the true financial position of the
company at the time of audit but not to care about declaring dividends.

In the case of Re Kingston, it was stated that he is a watchdog but not a blood-bound but if
there is anything calculated to excite suspicion, he should probe it to the bottom but he does not
guarantee the discovery of all fraud.

Nevertheless, an auditor will not be made liable for not tracking out ingenious and carefully laid
schemes of fraud, when there is nothing to arouse suspicion, and when those frauds are
perpetuated by tried servants of the company who are undetected for years by the directors. In
the case of Thomas Gerald And Sons Ltd (1968) Ch.455 has expressly presented the current
provision in contemporary company structures. It was held that circumstances had changed
since Re Kingston and the auditor is now a blood-bound. That auditors of the company owe a
statutory duty to make the members a report containing certain statements.
LIABILITY OF A COMPANY FOR THE ACTS OF ITS OFFICERS

At the end of this Chapter, the student will be expected to:

1. Understand ability of a company to acquire liability;
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Company Law Notes
 2. Understand the extent of a company’s liability for the acts of its officers;
3. Evaluate the liability of a company on a corporate contract;
4. Analyze the concept of “authority” and the doctrine of “holding out”.

LIABILITY OF A COMPANY FOR THE ACTS OF ITS OFFICERS

Liability may be criminal or civil. A company being an artificial person commits crimes and civil
wrongs and its mind has to be thought to be the directing will of the officer involved in the
wrong committed. Officers may be thought of as the BOD, accountants, and as was enunciated in
the case of SMITHFIELD BUTCHERY CO.V REP.(1939) 23 KLR 81, wrongful acts committed by
the subordinate staff of the company would not attach liability to a company. Here, it is the law
of agency that is appropriately applied. Since it is the principal and agent that dominate the law
of agency, the company is the principal and the officer is the agent. When an agent in the course
of agency commits a wrong, the aggrieved party has two options i.e. sue the agent, or sue the
principal

In determining whether a company is liable for the acts of its officers, one has to consider two
issues:
i) whether the company has the authority to enter into the transaction
ii) whether the officer was authorised to enter into the transaction

Whether the officer was authorised to enter into the transaction

In determining whether the company is liable for the acts of its officers, the court has to
ascertain whether the officer was the directing mind and will of the company.
Under common law, a company is liable for the acts of its officers but the company’s liability is
based on the principle of attribution (transferability from the officer to the company)

A company is akin to a human body and the individuals behind these transactions are the ones
who bind the company in its transactions. In LEONARD’s case, the company owned a ship.
Leonard was the active director in the company but he also took over an active role in the
management of the ship. The ship was un-seaworthy to carry oil. It later caught fire and the
cargo was destroyed. Under S.502 of the Merchant Shipping Act, the ship-owner was not liable
for any loss or damage happening without his fault. The company relied on this provision and
argued that the loss arose not from its fault but from the fault of the Leonard. The issue was
whether the company was liable in the circumstances and whether Leonard’s fault could be
attributed to the company. The HOL held that Leonard’s default was attributed to the company
and hence it could not rely on this provision. Lord Viscount said that the company is an
abstraction i) it has no mind of its own ii) its acting and directing will must be sought in the
person of somebody who for some purposes may be called an agent iii) but who is really the
directing mind and will of the company the very ego and the personality of the company.

How do you ascertain whether an officer had or constituted the directing mind and will of the
company (whether the person had the authority to act?)?
This will depend on the circumstances of each particular case. In HL BOTON & JJGRAHAM
[1957] 1 ALLER 624, a corporate landlord was sued for intending through its MD to occupy
premises for its own use. There was an argument that there was no meeting of the board of
directors to express the landlord’s intention and that therefore the landlord of the company can
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Company Law Notes
not say that it had the necessary intention. Lord Denning held that a company may in many ways
be like a human being, it has a brain and nerve centre which controls what it does. It also has
hands which hold the tools and act in accordance with the directions from the centre that some
of the people in the company like directors and managers do represent the directing mind and
will of a company and control what it does.

In TESCO SUPERMARKETS Vs NATTRASS [1972] AC 153 the case involved a large

supermarket. It had an advert displayed on the window with a particular item on sale. When the
reduced price items had all been sold, the shop assistant put out on display the same items but
marked them at normal price which was higher than that on sale. It was not reported to the
store manager and the advert remained on the window. The HOL held that the directing mind
can be employees to whom managerial powers have been delegated but it should be noted that it
is only those managers who are entrusted with significant degree of freedom from supervision
of high authority who are so regarded.

The public policy consideration for this directing mind and will concept is that a company must
be treated as a natural person for purposes of acts done in its course of business so it must take
precaution and exercise due diligence, default of which the fault of the human beings/natural
persons performing the functions of the company is attributed to the company.

If control is by more than one person whose intention should be looked at in determining the
mind of the company, in such a situation e.g. in a bank where you have aggregate knowledge or
different people in control of one transaction, it is a fallacy to say that the state of mind to be
attributed to the company must always be the state of mind of one particular officer. In
BRAMBLES HOLDINGS Vs CAREY [1976] the responsibility for ensuring that the company
complied with legislation was delegated to the following officers in the company – the
company’s main driver, the heavy trucks supervisor and the operations manager. The company
was charged with offences related to overloading. The offences occurred when the main driver
was on sick leave and replaced by another who had not been properly instructed by the
operations manager. The company argued that this was an honest and reasonable mistake since
the heavy trucks supervisor honestly believed that the vehicles were correctly loaded. The other
side argued that the operations manager knew or ought to have known that proper loading
instructions had not been given to the drivers. Whose knowledge and belief could be attributed
to the company to hold it liable? The court considered the knowledge of the operations manager
and heavy truck manager and held that in the circumstances, the operations manager was the
directing mind and will of the company. The court further observed that it is a fallacy to say that
any state of mind to be attributed to a corporation must always be the state of mind of one
particular officer alone and that the corporation can never know or believe more than one man
knows and believes.

CORPORATE CONTRACTS
Whether the company has the authority to enter into the transaction
These are of two types:
i) direct contract
ii) Indirect contract

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Indirect Contract
In a direct contract, there are two questions to consider:
a) whether the company authorised entry into the contract
b) whether the company authorised execution of the contract

For the first question, one looks at the memorandum if the transaction is intravires and for the
second question one looks at any form of authorisation.

For direct contracts, one looks at whether the agent has authority to bind the company.

Authority
Actual authority is where the company has agreed that an officer or agent can act on behalf of
the company and this can be established from the AOA, the company’s resolutions in the board
or general meetings.

Apparent or ostensible authority does not require a company conferring upon the officer or
agent authority. The officer binds the company because the agent appears to have the required
authority. Accordingly, an officer or agent may have apparent authority even if he/she does not
have actual authority.

For actual authority, a company gives consent to the officer or agent to act for the company and
it can be express or implied. There are four sources of express actual authority:
1) companies Act especially with matters to do with directors powers like allotment of
shares, declaration of dividends etc.
2) The companies AOA when the board collectively executes such powers via a resolution
3) Where the directors delegate authority which they are authorised to delegate
4) Any instrument by the company expressly authorising or appointing a person to act on
his behalf even if it’s just a letter of appointment.

All in all express authority is the actual authority of an agent created by a principal whether
orally, by deed or in writing. The scope of the agents’ actual authority is determined from the
principal’s oral statement or the interpretation of the deed or writing.

The MD has implied actual authority to do all things that fall within the usual scope of that office.
However it should be noted that the usual scope of the MDs powers will depend on what is
customary or usual for an MD in a similar company carrying on a similar business e.g. MD has
authority to supervise junior executives or to enter into a contract for the provision of services
for the company but the MD has no implied actual authority (usual authority) to sell the
company’s undertaking or to sell the company’s main business.

For the chairperson, he has implied actual authority to chair meetings of the board and to use a
casting vote to break the deadlock but unless he had delegated powers, he does not have
sufficient implied authority to bind the company in contracts.

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Directors: In general a director who is not the MD does not have sufficient implied authority to
bind the company to a contract unless a director has delegated powers. Directors act collectively
as aboard so a single director has no power to bind the company.

Company secretary: Has implied actual authority to discharge administrative matters, signing
contracts relating to administrative matters like employment of officers so in a way, he is a chief
administrative officer but he has no sufficient implied authority to bind the company to the
contract. In PANORAMA’S case, it was held that the company secretary has extensive duties and
responsibilities and is no longer a mere clerk

Apparent Authority
It is based and established on the principle of agency by estoppel. The company is precluded
from denying that the agent lacked authority e.g.
a) if a company permits an agent to carry out acts beyond the scope of the agents express or
implied authority
b) if the company permits the agent to occupy a particular position e.g. a defacto MD
c) where the agent holds no position but the company permits the agent to act as if he/she
has the necessary authority to act. This is what is technically referred to as holding out or
a representation.

A company just like an individual can represent by words or conduct to an outsider that another
person has authority. If the outsider acts on this representation and transacts business with the
apparent agent on the faith of it then the company will be estopped from denying the
representation. For the company to be bound by this principle of holding out, there are common
law requirements which must be satisfied. In the case of FREEMAN & LOCKYER, the court
stated four conditions;
1) There must be a representation (by word or conduct to an outsider that the person had
authority)
2) The representation must be by a person or officer or body with actual authority
3) The person making the representation must have intended it to be relied upon and it must be
shown that the representation was in fact relied upon
4) The transaction must be intravires

Exceptions where a person cannot claim ostensible authority or holding out

An outsider cannot claim that an agent had ostensible authority where the outsider had
knowledge of the persons who are vested with the actual authority and that there was no actual
authority given to the agent.

An outsider cannot argue for ostensible authority if a reasonable person in the outsiders’
position had doubts as to whether the agent had the authority to enter into the transaction.

Grace Flavia Lamuno-Birungi

Company Law Notes
Grace Flavia Lamuno-Birungi
Company Law Notes