Duties of office bearers of companies and private business corporations

Part IV of the Companies and Other Business Entities Act [Chapter 24:31] (hereinafter referred as ‘the Act’) provides for common provisions relating to fiduciary duties, remedies, and legal proceedings. This article mainly focuses on the duties of office bearers of companies and private business corporations.

1. Duty of care and business judgment rule

In terms of section 54 of the Act, every manager of a private business corporation and every director or officer of a company has a duty to perform as such in good faith, in the best interests of the registered business entity, and with the care, skill, and attention that a diligent business person would exercise in the same circumstances.In performing this duty, the manager, officer or director as the case may be, may rely on information, opinions, reports or statements (including financial statements) of independent auditors or legal practitioners or of experts or employees of the registered business entity whom the person reasonably believes are reliable and competent to issue such information, opinions, reports or statements.

A person who makes a business judgment acting in such capacity fulfils the duty with respect to that judgment if that person does not have a personal interest; is fully informed on the subject to the extent appropriate under the circumstances; and honestly believes when the judgment is made that it is in the best interests of the company or corporation.


2. Duty of loyalty

A manager or controlling member of a private business corporation and a director, officer or controlling member of a company has a duty to act with loyalty to that registered business entity and, in the case of a company, towards any subsidiary of that company.

Section 55(3) of the Act provides that, the duty of loyalty includes but is not limited to a duty—

 “(a) not to use property of the registered business entity for his or her personal benefit or for the benefit another person other than the entity;

(b) not to disclose confidential information of the entity or to use confidential information of the entity for his or her personal benefit or for the benefit another person other than the entity; and

(c) to communicate to the board or members (as the case may be) at the earliest practicable opportunity any information that comes to his or her attention, and

(d) not to abuse the person’s position in the registered business entity for his or her personal benefit, or for the benefit another person other than the entity; and

(e) not to take business opportunities of the registered business entity for his or her personal benefit, or for the benefit another person other than the entity; and

(f) not to compete in business with the registered business entity (including competing individually or as a manager of a private business corporation, or a director or officer of a company which competes in business with the registered business entity of which he or she is manager, director or officer); and

(g) not to accept a benefit from a third party for doing or not doing anything as a person referred to above (but this shall not include benefits which are de minimis in value or cannot reasonably be regarded as likely to give rise to a conflict of interest with the registered business entity concerned); and

(h) to never knowingly cause harm to the entity; and

(i) to serve only the registered business entity’s interest in all transactions involving the entity in which the person has a personal interest”.

3. Duty to disclose conflict of interest

If a person has a personal financial interest in respect of a matter to be considered at a meeting of the board of the company or meeting of the members of the private business corporation, or knows that an associate has a personal financial interest in the matter, the person must disclose the interest and its general nature before the matter is considered at the meeting;  must disclose to the meeting any material information relating to the matter, and known to the person; and may disclose any observations or pertinent insights relating to the matter if requested to do so by the other persons.

In terms of section 57 of the Act, if a director of a company acquires a personal financial interest in an agreement or other matter in which the company has a material interest, or knows that an associate has acquired a personal financial interest in the matter, after the agreement or other matter has been approved by the company, the director must promptly disclose to the board, or to the shareholders in the case of a company contemplated in section 56(3), the nature and extent of that interest, and the material circumstances relating to the director or associate’s acquisition of that interest.

The Act conclusively provides that no provision, whether contained in a company’s articles or a private business corporation’s by-laws or otherwise, shall relieve a director or member from the duty to act in accordance with this part or relieve him or her from any liability incurred as a result of any breach of such duties.

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