Powers of directors

Powers of directors
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Powers of directors must act in good a faith and for a right purpose, in the best interests of the company and with the degree of care, ability and diligence. The directors are treated as the head and brain of a company.When the brain and head of the company function well. For the right functioning, the directors should be appropriately entrusted with some powers. The directors generally obtain their powers from the resolutions of the Articles of Association and from the Companies Act. Here are the few exampels of the powers of directors:

  • Power of directors to issue shares
  • Power of directors to make calls on shares
  • Power of directors to provide for employees
  • Power of directors to forfeit shares
  • Power of directors to allot shares
  • Power of directors to refuse to register transfer of shares

Power of directors to issue shares[edit]

The directors of a company have the power to issue shares. The power to issue shares is given for the aim of raising needed capital for the company. Other purpose is not prima-facie a legitimate exercise ofthat power. It is an incorrect aim to issue shares to overbear a takeover bid but the execution of the issue of shares for this purpose may be verified in general meeting by the company.

Power of directors to make calls on shares[edit]

The Articles of Association of companies in general give the power to make calls up front from the shareowners relating to undischarged amount on shares vest in the directors. The power to make calls by directors should not be used for their own benefit. This power must not be assigned to committee of directors, the managing agent, secretaries, treasurers or the manager.

Power of directors to provide for employees[edit]

Directors have the power to provide for the benefit of employees. If the directors are not authorized by act of the company, they do not have the ability to make payments to thamselves. Any payment must be made before the beginning of  winding-up of the company and out of the profits accessible for dividend.

Power of directors to forfeit shares[edit]

The directors can make use their power to forfeit shares but only for the advantage of the company in order to enforce unwilling shareholders into covering their calls. Consequently, all the provisions connected to loss of shares must be complied with by the directors. Any abnormality in the process will disable the forfeiture of shares.

Power of directors to allot shares[edit]

Directors of a company have powers to divide shares. This power is a fiduciary one so must be used in a good faith for the benefit of the company as a whole.

Power of directors to refuse to register transfer of shares[edit]

The power to transfer shares is a right occasional to the possession of shares and unless the articles differently provide or the transfer is forbidden by the Act, this eligibility of transfer is uninhibited. The directors are authorised by the memorandum of association or by the articles to decline to register the transfer, where the consideration is not rightfully set down or where transfer is without transfer fees or where adequate form is not used or transfer is not correct denominated.


Author: Natalia Bielak