Company Director in Nigeria: Overview

Understanding Directors under the Companies and Allied Matters Act (CAMA)

A company director is a corporate position (who may or may not be a founder or founding member of a company) appointed or chosen via ordinary employment, a resolution of a company’s management board, or by means of a company’s articles of association to either manage a company, oversee the running of the company, represent the interests of a member or majority shareholder of a company or provide a specialist service to a company by virtue of being a highly skilled & experienced member of a particular profession.

The director executes the strategy of the company decided at the board level. In contrast, the company secretary ensures that the said strategy is implemented in compliance with company and international law.

Who is a Company Director?

We often use various metaphors to describe a director: a trustee, an agent, and an officer of the company. A company director is an individual appointed to manage or oversee the company's operations.

Directors may be appointed through ordinary employment, a company resolution, or the company's articles of association. Their roles include executing company strategy, representing stakeholders, or providing specialized services.

Types of Company Directors

There are quite a few different types of directors that can sit on a board. There are shadow directors, managing directors, and alternate directors.

Shadow director

Any person on whose instructions and directions the directors are accustomed to acting; being a shareholder or other individuals, but excluding professionals such as accountants, solicitors, and bankers, who are merely acting in their professional capacity (Section 245).

Shadow directors are often unknown until a problem arises and it becomes necessary to identify individuals who have exercised dominant control over the affairs of the company. However, Section 245 requires that the disclosures made by directors under Section 275 include those of shadow directors.

Alternate director

He is a person appointed (strictly in accordance with the provisions of the articles) to act on behalf of and in place of a director. An alternate director may be one of the directors or a non-member of the board.

His appointment must be approved by the board as a whole. He has equal responsibility as that of the principal, but he is not remunerated by the company although like the appointor he has the same rights at board meetings.

An alternate director shall cease to be an alternate if his appointor ceases to be a director; for example, by retirement, unless the appointor is reappointed.

Managing Director

Where the company articles permit or are in line with Section 268 of CAMA, the company can appoint a managing director from amongst the board members and such a director shall be entitled to such different remuneration as the board may deem fit. Such a director shall also be responsible for the day-to-day running of the company and shall have ostensible authority to bind the company in contracts.

Who Can be Appointed a Company Director?

Generally, anybody aside from those disqualified by the law is capable of being appointed a director. The following categories of persons may not be appointed a director of a company:

A minor - a person under the age of 18 years.
A lunatic or person of unsound mind.
A bankrupt or a person who has made any arrangement or composition with his creditor generally.
A person disqualified under the law or the company's articles of association.
A corporation other than its representative appointed to the board for a given term.

How to appoint a Company Director

When applying for the incorporation of a company, Section 35(2)(c) of CAMA requires that the first directors shall be appointed through a statement in the prescribed form. This refers to Form CAC7 which contains the particulars and signatures of the first directors.

The responsibility for this appointment rests with the subscribers to the memorandum of association (Section 247 of CAMA, 2004).

The subsequent appointment of directors will come in the form of any or a combination of the following;

Annual General Meetings (AGMs)
Filling casual vacancies
Compliance with shareholding qualifications

Age and Insolvency Restrictions of Directors

Directors of public companies aged 70 or older must disclose their age at the general meeting. Insolvent individuals are prohibited from acting as directors, with violations resulting in fines or imprisonment. Courts can also restrain fraudulent persons from managing companies.

Rotation and Validity of Directors

There would also be the appointment/ reappointment of a director in line with the provisions of Section 259 of the Act which provides:

At the first AGM, all directors must retire but are eligible for reappointment.
In subsequent AGMs, one-third of the board retires by rotation.
Directors retiring must be those who have served longest unless agreed otherwise.

Note that where two or more directors are to be re-elected at an annual general meeting, the re-election shall be done in turn unless the resolution to vote the retiring directors by a single resolution has first been moved and carried by all the shareholders present without any dissent (Section 261 of CAMA). This provision may however be waived in the case of a private company.

Procedures for appointment of a company director

Appointment of directors should be made strictly under the provisions of the company's articles of association and should follow the following procedure viz.:

Check the articles of association to confirm the mode and the maximum number of directors.
Refer appointment to the Nomination Committee if the company is listed.
Obtain approval of the appointment at a board meeting or at a general meeting.
Prepare a resolution for the appointment of directors).
Obtain and fill Form CAC 7 with the particulars of all directors - both old and new.
Obtain the signatures of ALL directors (old and new) on the form and together with the resolution, deliver it to the Corporate Affairs Commission within fourteen days.
Enter particulars in the register of directors and secretary (Section 292); and in other relevant registers, such as the register of directors' interest in shares and debentures.
Remind the director of the need for his qualification shares (if required by the articles).
Request the director to make disclosures of any interest in shares and debentures of the company and also to give general notice of any interest in contracts.
Notify third parties with whom the director shall have dealings, e.g. bankers.
Supply the new director with the company memorandum and articles of association, the latest audited accounts, the board charter, and other relevant board and company guides.
Conduct an induction exercise for the new directors).

As earlier mentioned, the formal appointment of a director shall be proposed at the annual general meeting of the company immediately after the appointment by the board.

Mode of Voting on Appointment of Directors

At a general meeting of a company other than a private company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be made, unless a resolution that it shall be so made has first been agreed to by the meeting without any vote being given against it.
A resolution moved in contravention of this section shall be void, whether or not its being so moved was objected to at the time:
- This subsection shall not be taken as excluding the operation of section 260 of this Act.
- Where a resolution so moved is passed, no provision for the automatic re-appointment of retiring directors in default of another appointment shall apply.
For the purposes of this section, a motion for approving a person's appointment or for nominating a person for appointment shall be treated as a motion for his appointment.
Nothing in this section shall apply to a resolution altering the company's articles.

How Directors conduct Meetings

The directors may meet together for the dispatch of business, adjourn, and otherwise regulate their meetings as they deem fit, provided that the first meeting of the directors shall be held not later than six months after the incorporation of the company.
Any question arising at any meeting shall be decided by a majority of votes, and in case of an equality of votes, the chairman shall have a second or casting vote.
A director may, and the secretary on the requisition of a director shall, at any time summon a meeting of the directors.
The directors may elect a chairman of their meetings and determine the period for which he is to hold office; if no such chairman is elected or if at any meeting the chairman 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 chairman of the meeting.
The directors may delegate any of their powers to a managing director or to committees consisting of such member or members of their body as they think fit and the managing director or any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be made by the directors.
A committee may elect a chairman of its meetings; if no such chairman is elected or if at any meeting the chairman is not present within five minutes after the time appointed for holding the meeting, the members present may choose one of their number to be chairman of the meeting.
A committee may meet and adjourn as it thinks proper, and any questions arising shall be determined by a majority of votes of the members present, and in the case of equality of votes the chairman shall have a second or casting vote.
A resolution in writing, signed by all the directors for the time being entitled to receive notice of a meeting of the directors, shall be as valid and effectual as if it had been passed at a meeting of the directors duly convened and held.
In all the directors' meetings, each director shall be entitled to one vote.

Quorum and Notices of Director's Meeting

Quorum: Two directors if six or fewer; one-third if more than six.
Directors are entitled to notice of meetings, generally 14 days in advance.

Remuneration of Directors

It is determined by the company in a general meeting.
Includes payment for travel and other expenses.
Prohibits tax-free payments and loans to directors except in specific circumstances.

Removal of Directors

Directors can be removed by ordinary resolution at a general meeting, with special notice requirements.
The director has the right to make representations and attend the meeting.

Disqualification of Directors

Directors cannot be minors, individuals of unsound mind, bankrupts, or those guilty of fraud.
Persistent absence from board meetings may also lead to disqualification if outlined in the company's articles.

Minimum Number of Directors

Small companies need at least 1 director.
Private companies (excluding small ones) need at least 2.
Public companies require at least 3 independent directors with specific qualifications.

Directors play a critical role in managing and guiding the company. Their appointment, duties, and removal are governed by the Companies and Allied Matters Act, ensuring effective governance and compliance.

Actions to Take When a Company Director Vacates Office

When a company director vacates their office, several key actions must be undertaken:

Update Registers: Record the director's cessation in the register of directors and secretaries, and in the register of directors' interests in shares and debentures.
File Notice: Submit a notice in the prescribed Form CAC 7, along with the relevant resolution, to the Corporate Affairs Commission (CAC) within fourteen days.
Inform Stock Exchange: For listed companies, notify the Stock Exchange of the director's departure.
Update Bank Mandates: Notify the bank to revoke the director's mandate if they were a signatory to the company's bank account.
Settle Fees: Ascertain and pay any accrued fees to the departing director and provide the appropriate tax forms.
Negotiate Employment Settlement: If the director was also an employee under a fixed service agreement, negotiate a settlement for any claims related to the premature termination of employment.

Actions After the Death of a Company Director

The death of a company director triggers several important steps:

Sole Director: If the deceased was the sole director and there are surviving shareholders, they can hold a shareholders' meeting to appoint a new director.
Surviving Directors: The remaining directors can continue managing the company and sharing the responsibilities of the deceased director, provided the company's articles of association permit this.
Sole Shareholder: If the deceased director was the sole shareholder, the personal representatives can appoint a new director under the Companies Act 2006 model articles.
Share Transfer: The transfer of shares may be governed by the deceased director’s will or, if none exists, by the company’s articles of association or shareholders’ agreement.

Company Directors' Service Contracts

Directors' service contracts must be clearly documented and include:

Contract Approval: If the contract stipulates a term of more than five years or renewal terms beyond six months before expiration, it must be approved by the members in a general meeting. The memorandum must be available for inspection at least fifteen days before the meeting.
Contract Provisions: Typically, service contracts outline:
- Pension rights
- Holiday and sick pay
- Entitlements
- Duties and responsibilities
- Restrictions on joining competitor companies

Powers and Responsibilities of the Board of Directors

Directors have several key powers and responsibilities:

Allotment of Shares: Directors can allot shares based on directives from general meetings or provisions in the articles of association, acting in the company’s best interest.
Management: Directors manage the company on behalf of shareholders and may enter into contracts, subject to the company’s articles of association and, occasionally, ratification by members.
Forfeiture of Shares: Directors can make calls on shares and, if amounts due are unpaid, follow the procedure to forfeit shares.
Delegation: The board can delegate powers to committees and must ensure minutes of all meetings are properly maintained and accessible.
Alternate Directors: Directors can appoint alternate directors, who are entitled to reimbursement for travel and other expenses but not remuneration. The appointor remains liable for the actions of the alternate director.

Disclosure of Directors' Interests

Directors must adhere to disclosure requirements:

Register of Shareholdings (Section 275): Maintain a register detailing shares or debentures held by each director, including transactions affecting their holdings. The register must be accessible for inspection and provided to the Commission upon request.
General Duty to Give Notice (Section 276): Directors must notify the company of their interests and provide written notices at meetings.
Disclosure of Interests in Contracts (Section 277): Directors must declare their interests in any contracts with the company at the relevant directors' meetings.
Particulars in Trade Catalogues (Section 278): Companies must disclose directors' details in trade circulars and business letters.

Directors' Duties

Directors have several fundamental duties:

Act Within Powers: Directors must operate in accordance with the company’s memorandum and articles of association.
Promote Company Success: Directors should act to promote the success of the company for the benefit of its members, considering the interests of other stakeholders.
Exercise Independent Judgment: Directors should exercise independent judgment, though certain agreements may restrict this.
Care, Skill, and Diligence: Directors must act with reasonable care, skill, and diligence, avoiding negligence and breach of duty.
Avoid Conflict of Interest: Directors must avoid conflicts of interest and must declare any potential conflicts.
Declare Interests in Transactions: Directors must declare their interests in contracts with the company.
Annual Accounts and Auditors: Directors are responsible for preparing and presenting annual accounts and appointing auditors.

Liabilities of Company Directors

Directors may face various liabilities:

Penalties for Non-Compliance: Liabilities for persistent default in compliance with regulations.
Secret Profits: Directors must account for any secret profits made.
Criminal Liability: Directors can face criminal charges for wrongful execution of company transactions.
Breach of Contract: Liability for breaches of contracts with third parties.
Liability for Debts: Directors are liable if they continue trading after the company’s membership falls below two.

Conflicts of Duties and Interests

Directors must avoid conflicts and cannot make secret profits or benefit from their position:

Conflict of Interest (Section 280): Directors must avoid personal interests that conflict with their duties.
Multiple Directorships (Section 281): Holding multiple directorships does not reduce fiduciary duties.
Duty of Care and Skill (Section 282): Directors must act with reasonable care and skill.
Legal Position (Section 283): Directors are trustees of the company's assets and must account for their use.

Property Transactions and Secret Benefits

Directors must adhere to regulations regarding property transactions and secret benefits:

Substantial Property Transactions (Section 284): Approval is required for transactions involving substantial property.
Exceptions (Section 285): Certain transactions are exempt from approval requirements.
Liabilities for Violations (Section 286): Unauthorized transactions must be accounted for, and directors may be liable.
Prohibition of Secret Benefits (Section 287): Directors must not accept bribes or gifts that influence transactions.

Miscellaneous Matters Relating to Directors

Unlimited Liability (Section 288): Directors may have unlimited liability if specified in the company’s memorandum.
Special Resolution (Section 289): Companies may alter their memorandum to make directors' liability unlimited.
Personal Liability (Section 290): Directors are liable for misuse of company funds with intent to defraud.
Long-Term Contracts (Section 291): Contracts exceeding five years must be approved by the company.
Register of Directors (Section 292): Maintain a register of directors and secretaries, ensuring compliance with notification requirements.

Conclusion

The Companies and Allied Matters Act 2020 (CAMA 2020) establishes a robust legal framework to govern corporate operations in Nigeria. It emphasizes transparency, accountability, and fiduciary responsibilities, ensuring that directors act in the best interests of the company and its stakeholders.

The Act's comprehensive provisions on the disclosure of directors' interests, personal liability, employment contracts, and the maintenance of registers are designed to promote good corporate governance.

By aligning with global standards, CAMA 2020 aims to enhance business efficiency and foster a more reliable and attractive business environment in Nigeria, ultimately contributing to economic growth and investor confidence.