LEGAL VIEWPOINT: Legal duties of the Board of Directors By Dr. AbdelGadir Warsama Ghalib, LEGAL COUNSEL, Bahrain

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Dr AbdelGadir Warsama Ghalib, Legal Counsel

The elected first Board of Directors of the company shall start its duties by electing a Chairman and a Vice-Chairman for the Board of Directors. The Chairman shall be the spearhead of the company and the Vice-Chairman takes his place and responsibilities during his absence for whatever reason.

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A vacancy in the Board of Directors could occur, for any reason, during the tenure of the Board. As per the law in some places, other members of the Board of Directors may appoint a new member to fill-in the vacant position in the Board, provided that the appointment of the new member shall be presented to the general assembly of the company during its first meeting following the appointment. The general assembly could ratify the appointment or reject it and elect another director. unless the articles of association of the company provides otherwise. The new director shall complete the term of its predecessor.

In case the vacant posts reach one fourth of the number of the Board of Directors the Chairman shall convene a general assembly of the company within a maximum period of three months, for the purpose of electing new members to the Board of Directors to fill-in the vacant posts.

The Board of Directors of the company shall perform all necessary duties and responsibilities required for managing the general affairs and objects of the company. However, the Commercial Companies Law and the articles of association of the company provide for certain responsibilities and duties to be performed exclusively by the general assembly of the company.

This creates a distinction between the duties of the Board of Directors (which are of management and administrative nature) and the duties of the general assembly of the company (which are of policy and strategy nature).

The Board of Directors shall not cross the line and assume or undertake the duties of the general assembly. If this occurs for any reason, the acts will be regarded as ultra vires because they are outside the duties and jurisdiction of the Board of Directors.

Given below are some examples of matters that are left exclusively for the general assembly, including: Approving loan agreements for periods exceeding certain years, selling or mortgaging the place of business or other real estate owned by the company, absolving members of the Board of Directors of the company from their liabilities.

The Board of Directors shall refer such matters to the general assembly of the company because they are sensitive issues affecting the future of the company. The shareholders of the company, through the general assembly, shall directly be involved in these major issues.

In addition to the general duties enumerated in the law and or the articles and memorandum of association of the company, there are more new duties envisaged on the Board of Directors of each company. The corporate governance rules, stipulate for the new duties given and to be exercised by each Board of Directors in each company.

The corporate governance principles provide that, the Chairman and the whole Board members are to excel and endeavor to undertake their prime duties with full transparency to all concerned ends particularly the stakeholders. Moreover,  there are certain limits wherein members of the Board of Directors are fully accountable. This accountability covers all duties and powers to be exercised by each member of the Board of Directors under the direct supervision of the Chairman of the Board. The Chairmanship is of an extra bossy duty.

Members of the Board of Directors are, supposed to undertake their duties through certain committees to be established as per the provisions of the corporate governance rules. Through such committees, all members of the Board will be actively and directly involved in the affairs of the company, according to his direct relevant experience, knowhow and professionalism.

As clear from above, the Board of Directors in each company is having many mulit-duties that are to be exercised with full concern and due diligence. Each member in the group shall give top priority to such duties and all members are to work collectively in harmony to give their best to the company and the community…