Legal Position of Directors

Directors are the individuals who are appointed to manage the business affairs of the company.

Legal Position of Directors

 

Introduction

 

Directors are the individuals who are appointed to manage the business affairs of the company. A company is a separate legal entity who has legal existence of its own, but it cannot manage its activities on its own physically. So, it needs to be managed by someone who can take care of all the business activities.

Now you might be thinking that why do we need a director for all this as every company has its shareholders who are physically available to manage the company.

The answer to your question is here, that as the number of shareholders grow, all of them together may not be able to manage the affairs, and if do so it shall lead to mismanagement and nothing else. That’s why the concept of directors has emerged to handle all the activities of the business. The director of the company may be elected from among the shareholders or from outside.

 

Legal Position of Directors

 

Directors can be considered as both, Agents and Trustees.

As Agents, they bind the company as their principal with proper rules and regulations. Also, where directors are empowered to take decisions, the company means the shareholders cannot issue directions directing them to go and take a particular decision.

As Trustees, the directors are required to take care of the properties, money etc. belonging to the company. In fact, as trustee the directors are in fiduciary relationship (it is when a person has a duty to act for the benefit of the other) with the company and if it gets broken and the company suffers losses because of the illegal acts of the directors, they shall be required to compensate for the losses suffered by the company.

 

Collective Body of Directors

 

The collective Body of Directors simply means the “Board of Directors”.

It is the ‘Board of Directors’ who takes decisions at any Board Meeting and not any individual director. This is the reason why the presence of minimum number of directors at the Board meetings is prescribed so that decisions can be taken collectively.

 

Disclaimer: The above-mentioned cases are illustrative and not exhaustive. This article is only for discussing general issues and hereby we do not express any opinion or give any consultation in whatsoever manner understood. The cases may differ from assessee to assessee. We recommend you to take expert advice depending upon your particular case.

 

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