Duties of Directors -Companies Act, 2015: ”the Act”
How is a director appointed?
A director of a company is appointed by shareholders of the Company through a General Meeting or circular resolutions, as provided for in Section 262 of the Act. The director may also be appointed by the Board to fill a casual vacancy, should such a vacancy arise during the year. A director appointed to fill a casual vacancy MUST resign at the next Annual General Meeting (AGM) and is eligible for re-appointment by shareholders.
What are the responsibilities of a director?
The Companies Act provides for a wide range of duties and responsibilities, the most notable roles are:
- To promote success of the Company;
- To act within powers as provided in the Act and Company constitution;
- To exercise independent judgement;
- To exercise reasonable care, skill and diligence;
- To avoid conflicts of interest and to declare (if any);
- Not to accept benefits from third parties in the capacity as a director; and
- To protest against removal as a director.
The Board of directors are also responsible for the overall leadership of an organization collectively. Ordinarily, the following are some of the board roles:
- Overall leadership of the organization;
- Review and approval of audited financial statements;
- Appointment of senior executives in an organization;
- Review and approval of relevant company policies;
- Review and approval of company strategies and investment initiatives;
- Approval of the company budget;
- Appointment of the company secretary;
- Appointment of auditors and directors to fill casual vacancy(s), among other roles.
Additional responsibilities for directors are enshrined in the articles of association. Executive directors’ duties are also included in their contracts and appointment letters.
How does one cease to be a director of a Company?
A director may cease to hold office should any of the following arise:
- The director is declared bankrupt
- The director is of unsound mind
- The director is disqualified from holding the position by the court or relevant government authority
- The director is removed from office in accordance with Section 139 of the Act.
- Resignation from office
- Lapse of the period of appointment
- Occurrence of an event that leads to cessation of directorship.
Upon cessation of office, an application to register the changes must be filed with the Companies Registry within 30 days from the date of cessation. Upon approval of the change, an official status report (CR12) from the Companies Registry is obtained.
Directors of companies must be aware of their responsibilities, failure to comply with the duties may lead to penalties of up to Kenya Shillings 1 million (USD 10,000).