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This presentation explains about the legal position of directors.
Directors are the persons duly appointed by the company to direct and manage the affairs of the company.
Their legal position is sometimes described as agents, sometimes as managing partners, and sometimes as trustees.
LEGAL POSITION OF DIRECTORS
• Directors are the persons duly appointed by the company to
direct and manage the affairs of the company.
• Their legal position is sometimes described as agents,
sometimes as managing partners, and sometimes as trustees.
• But each of these is not exhaustive of their powers and
responsibilities but as indicating useful points of view from
which they may for the moment and for the particular purpose
Directors are viewed as the agents of the company for the conduct of its
business. A company cannot act by itself; it acts only through its directors.
Directors act on behalf of the company and acting on behalf of the company
make the company liable on it and not themselves. The Directors cannot be
held personally liable for any default of the company.
Like agents, directors should conduct business of the company with care,
skill and diligence possessed by them. They are accountable for all of
company’s assets under their control, and the profits from assets of the
company. Directors cannot deal on their own and are required to disclose
their personal interest, if any, in any transaction of the company.
DIRECTORS AS AGENTS
This can be explained by the case Ferguson V. Wilson (1866):
F had an option to subscribe for some of the company’s shares & hence he
applied for some shares. The directors allotted the whole of the
authorized capital to other persons including themselves.
Consequently, the option given to F became worthless. He then sued W, one
of the company’s director to transfer some of his shares to him and pay
damages. However, F’s claim failed on the ground that directors were only
the agents of the company and incur no personal liability
But directors are not completely like agents because where as agents
are appointed, directors are elected. Hence they are more like managing
DIRECTORS AS MANAGING PARTNERS
• Directors represent the shareholders to conduct business of the
company on their behalf.
• They enjoy vast power of management over the company and perform
many functions which are in the nature of proprietary, for example,
allotment of shares, raising of loans, investment of funds of the company.
• This gives impression of directors being the active
partners and the shareholders appointing them as
• The very fact that most of the times directors
themselves are the significant shareholders in the
company strengthens the argument that directors
are the managing partners of the company.
But this may be true only partially as unlike partners, directors
cannot bind other shareholders by their dealing, and dissimilar to
partners, directors are elected and are subject to retirement also.
But why then, a director has no authority to bind other directors
and shareholders like partners in a firm ? Why should the question
of retirement arise in the case of a proprietor ?
Directors are subject to retirement. This shows that they are not
managing partners or proprietors in full sense.
Directors are the persons selected to manage the facts of the company for the
benefit of the shareholders. It is an office of trust, which it is their duty to perform
fully and entirely.
Directors are also described as trustees of the company they must account for all the
money over which they exercise control. Their acts and dealings must be for the
benefit of the company. They must exercise their powers
honestly in the interest of the company and all the share holders,
and not their own sectional interest. They occupy a fiduciary position.
Directors are trustees of:
• The company’s money or property which comes into their hands
or which is actually under their control and;
• Of the powers entrusted to them.
Directors are the trustees of the company and not of individual
shareholders. This principal was laid down in the case of Percival V.
Negotiations for the sale of a company’s undertaking were on foot
and without disclosing this, the directors purchased shares from
the plaintiff shareholder.
The plaintiff claimed that the non-disclosure was a breach of the
But the court held that there was no such fiduciary duty towards
individual shareholder and therefore, the directors were not bound
to disclose negotiations.
However, directors are not like trustees of a will or of a
A trustee is a person who is the owner of the property,
deals with it as principal, as owner and a master,subject
only to an equitable obligation to account to some person,
to whom he stands in relation of trustee.
A director on the other hand is not the owner of the
property but is only an agent of the company.
Thus, he is not like a trustee either.
In the real sense, the directors are not the agents completely nor
the managing partners nor the trustees. The position of directors
combines all the three and more than that also.
Directors are paid agents or officers of the company and conduct
business for the company without being the legal owners. In fact
the directors are commecial men managing a trading cncern for the
benefit of themselves and of all the shareholders in it.
Directors of a company have fudiciary relationship with the company
as well as with the shareholders when they act as agents or
officers of a company. Being the fudiciary capacity utmost good
faith is expected from the directors of a company. The directors
have to follow the Articles of Association and acts through
meetings of the Board of Directors.
•Agent - a person who acts on behalf of another in paticular.
•Trustees - a person given control or powers of administration of property in
trust with a legal obligation to administer it solely for the purposes specified.
•Active partner - an invested person who is involved in daily operations of the
•Dormant partner - a person who is not known to third parties but is entitled
to share in profits and is subject to losses.
•Fudiciary relationship - a relationship in which one party places special
trust, confidence, and reliance in and is influnced by another who has a
fudiciary duty to act for the benefit of the party.