The position of directors in their relationship to the company is not only as the agent, but also they have to act, to some extent, as trustee of the company and, in the position of trustees, as an employee also. The directors have the following positions in the company.
- Director as an Agent: The general position of the directors in the company is that they represent company in dealing with third party. A company, which is a legal entity, cannot act by itself, and it can act only through natural persons who are known as the Board of Directors. Therefore, as per the general principles of the law of agency, where the Directors enter into contracts on behalf of a company in the ordinary course, the company will be liable as principal and not the directors. Directors are agents in transactions they enter in to on behalf of the company, though they are not agents for individual shareholders or members.
- Director as a Trustee: Directors are not trustees in the legal sense, as the rules applicable to trustees under the Trustees Act do not apply to directors. But, for the assets and properties of the company, in addition to being agents of a company, the directors also act as trustee because they have to hold the company’s properties with utmost trust and manage the affairs of the company for the benefit of the shareholders primarily. The duties attached to the directors are fiduciary in nature, and they have to display good faith towards the company.
- Director as an Employee: When a director is in the employment of the company, for example, as managing director or whole-time director, he will be treated as an employee. ‘Managing Director’ is treated as an employee held by the Hon’ble Supreme Court.
- Directors as Officers: For certain matters under the Companies Act, the directors are treated as officers of the company [Sec. 2 (30)]. As such, they are liable to certain penalties if the provisions of the Companies Act are not strictly complied with.
- Director is not Servant: Directors are not servants of the company but to a certain extent act in the position of managers or managing partners.
For citing this article, use:
- Sugapriya, S. (2021). Corporate administration reforms in india a study with reference to listed companies in coimbatore region.
