18 January 2023
Legally speaking the positions of chairmanship & membership of boards in Joint Stock Company has got their burdens and liabilities. The appointees may rejoice appointments and big titles for social purposes. But, as a matter of law and fact, they are sitting on “hot chairs”.
The provisions of the company law give clear view about the (heat) of such responsibilities. As examples, the chairman and members of the board shall be liable towards the company, shareholders and third parties for all acts of fraud, abuse of authority, violation of the law or the Articles of Association, and they shall also be liable for mismanagement due to acts of negligence.
This shows that everyone has the right to take legal action, on the occurrence of any of the above instances, against the chairman and members of the board. They are exposed to legal proceedings from within or without the company. This indicates that the chairman and directors should perform their duties with utmost care, diligence and high standards of professionalism, failing which the company or any shareholder or other third party may take legal proceedings against them jointly or separately. Many shareholders are not aware of this legal right, could be due to their ignorance, or carelessness ….
The chairman and directors are jointly liable if the fault or negligent mistake occurs as a result of resolutions adopted unanimously. However, if the resolution has been adopted by majority only, the dissenting directors shall not be held liable provided that they have recorded their objections in the minutes of the meeting.
This shows the importance of reporting all necessary details in the minutes. Directors who have dissenting opinions shall insist on entering and recording their dissenting views in the minutes, otherwise they share the responsibility with other directors regarding the outcome of that specific resolution. Moreover, it is important to mention, that mere absence of a director during the meeting wherein that specific resolution has been adopted will not absolve him from the liability unless he has proved that he was not aware of the resolution or that he was aware of it but was unable to show or explain his objection for any reason.
This shows that the legal burden regarding resolutions of the board is following the director even during his absence at the time of that particular resolution. This is, we believe, is very important because the intention of the legislature is to close the door for some directors who may seek an “alibi” when they know that certain issues will be discussed and they don’t want to involve themselves. A director should have a say in all issues raised because he is responsible in all cases and mere absence will not bar him from the liability.
The general assembly shall specify who should take the legal proceedings, on behalf of the company. If the company is in liquidation, the liquidator shall assume the powers of the shareholders and initiate the legal proceedings on behalf of the company. A shareholder, by himself may initiate such proceedings if he thinks the company has failed to do so but he should prove the occurrence of particular damage to him as a shareholder, and such shareholder should take all steps to notify the management of his intention to initiate legal proceedings.
An additional burden or misgiving, relates to the fact that neither the chairman nor directors shall do or start any work that may cause competition to the company. The conflict of interest rule shall be observed carefully. This is to deprive occurrence of all instances of malpractices, opportunism and importation. All brains and hands of all directors shall work towards one ultimate goal and direction, which is the interest of the company and shareholders. This attitude and goal shall always prevail over personal interests of the persons elected to serve the company. However, the general assembly may, in certain genuine circumstances, exempt a director from such limitation under certain conditions provided that this exemption shall not hamper or affect the interests of other shareholders.