Company management and

related issues
Lecture 1
 Lecture presentation
• Introduction
• Company organs
• The shareholders as an organ
• The board of directors
• Directors, appointment
• Powers and duties of directors: an overview
Lecture outcomes
By the end of this lecture, leaners must be able to:
• Define the organs of the company.
• Explain the concept of a director
• Outline the process of director appointment.
• Explain the concept of directors’ powers.
• Explain the Turquand rule.
• Discuss the applicability of the Turquand rule in company
management.
 Introduction
• Who manages a company?
• What is to direct or controlling a company?
• who appoints a director?
• Who can be a director?
• What powers do company directors have?
• What are the duties of company directors?
• This discussion deals with company management, representation,
organs agents/functionaries, their authority and related matters.
• A company as defined is a legal entity existing separately from its
management and owners.
• This concept of a company as a juristic person is only a fiction.
• This necessitates entrusting of company’s functions and
responsibilities into the hands of its representative organs such as
the board of directors.
• This organ manages the company’s affairs.
• A company cannot act on its own person (Salomon v Salomon and
Company Ltd [1897] AC 22 (HL) 30, 50).
• A company can only act through organs (company
brains) which lays down policy and agents (limbs)
acting within their powers and authority.
• In courts cases involving the company (litigation) , the
courts requires a copy of a directors’ resolution
sanctioning the litigation and an affidavit from its legal
representative stating that he/she was duly appointed
as legal representative.
• Signatures on documents on behalf of the company are
deemed to be that of the company itself eg. on cheques
or other negotiable instruments.
 Company organs

• Company organs in general are ; (i) company in general meetings,

• (ii) Board of directors as a properly constituted
body which practices management of the company.
• One organ may not interfere with affairs of another. This is in line with modern
day business practices of good corporate governance.
• Eg the company’s general meeting may not interfere with the board of directors
in respect of management.
• However, the general meeting may; (i) appoint and dismiss directors (section
175),
• (ii) ratify director’s actions exceeding
their authority if lawful not ultra vires or fraudulent on minority members,
• (iii) act in the event of the directors (all)
stopping being as such ( died, become disqualified, resigned etc),
OR the board refuses or otherwise is unable to take action.
 The Board of directors

• The board of directors performs the management functions of a

company.
• The Board only performs this management function if it is properly
constituted. This means individual directors cannot exercise the
management function.
• Directors functions through resolutions at properly constituted meetings.
• Articles can allow for directors to function or exercise their management
functions through unanimous assent, that is, by the circulation of a
written proposal that must be signed by all and minuted thereby
acquiring the status of a resolution at a meeting).
• Notice of meetings must be given to every director who is accessible
unless board regularly meets at fixed times and a fixed place.
• The articles regulate the mode of notices, quorums and proceedings
 Directors

• Directors (plural) mean the board, that is, the organ

managing the company’s business.
• A director is defined in section 2 of the Act as to include ‘
any person occupying the position of director of alternative
director of accompany, by whatever name he may be called.
• The effect of this provision is that it is not the name that one calls
self that determines whether such is a director but rather whether
such a person exercises the functions of managing a company
normally attributed to a director.
• An alternative is a substitute director.
• A de factor director is someone occupying the position of a director
without valid appointment.
Appointment (nomination and acceptance)

• A person becomes a director on acceptance of appointment.

• A director‘s powers are determined by articles.
• The terms of appointment eg tenure of office, remuneration etc are
determined in terms of the articles or a contract with the company.
• Appointment entails election by members or others eg creditors.
• Subscribers to the memorandum are deemed to be the first directors
unless provided otherwise.
• Subsequent directors are appointed in terms of the articles.
• Acceptance must be in writing.
• The company must keep available for inspection, a register of directors
and officers at its registered office, containing personal particulars of
directors.
 Qualifications: who can be a
director?
• The Act disqualifies rather than prescribing for qualifications.
• Section 200 disqualifies from appointment as a director the following persons;
• (i). a body corporate- an artificial person cannot be a director of another artificial person
(company).
• This is because as a director, one is expected to as the company’s agent so a body corporate which
itself requires an agent (natural person) to act on its behalf cannot be an agent of another.
• (ii). A minor or any other person under legal disability. A woman married in community of property (
a marriage regime where the parties thereto jointly own and control the property of the marriage)
may be a director only if he husband gives his written consent to that effect.
• These two grounds are absolute disqualifications.
• The following may only be directors with the consent of the court;
• (i). an unrehabilitated insolvent
• (ii). Person convicted in Zimbabwe or elsewhere of theft, fraud, forgery, or uttering a forged
document or perjury and having been sentenced in relation thereto, to serve a term of
imprisonment without the option of a fine or to a fine not exceeding a certain limit
• (iii). any person who is subject to an order under the Companies Act, and,
• (iv). any person removed by a court from an office of trust on account of misconduct.
 Board structure/composition
(section 195)
• A private company with more than 1 and fewer than 10 shareholders SHALL have 2 or
more directors.
• A private company with 10 or more shareholders SHALL have not fewer than 3 directors.
• A public company shall have not fewer than 7 nor more than 15 directors.
• Implications on corporate governance- number of directors and board structure. See
notes in the reader.
• At least 1 director must be ordinarily resident in Zimbabwe.
• At its simplest level, ordinary residence connotes something more than mere temporary
presence in a place.
• It refers to the place in which a person's lifestyle is centered and to which the person
regularly returns if his or her presence is not continuous.
• that a person is a resident of Zimbabwe if his or her permanent home, to which he or
she will return (normal place of abode), is in Zimbabwe.
• Any person who is also a company’s CEO shall not also be a chairperson of the board
(section 195(3)).
 Remuneration of directors

• Directors are not employees of the

company.
• They are not entitled as a right to
remuneration.
• However, the model Articles in Table A
of the Act empowers a general meeting
to fix director’s remuneration.
 Powers of company directors

• Articles of a company determine what powers its directors have.

• If the Articles entrust the directors with the powers to manage the company, the
shareholders cannot interfere with this.
• If the shareholders disapprove of the director’s acts, they must alter the Articles or
alternatively remove him from his position.
• The shareholders cannot take over the functions of a director.
• Scott v Scott (1943)- the company in a general meeting resolved first to pay
dividends to preference shareholders and second that the financial affairs
of the company be investigated by an accounting firm. The court held that
such resolutions were invalid for they amounted to the general meeting
interfering with the powers of the directors under the Articles.
• If however, the directors’ acts are in excess of their powers, the general
meeting can ratify those acts done without authority by an ordinary
resolution.
• Directors acts as a board rather than
individuals.
• Directors can thus exercise their
powers at a properly constituted board
meeting.
• This meeting can be summoned by
a director any time after giving
appropriate meeting (in the mode
 Powers to bind the company

• The acts of a director are valid and binds the company regardless of any
defect in the way the director was appointed.
• A director may however not bind the company on ordinary rules of agency
if: (i) the person claiming to be a director was never appointed as such (N/B)
There is a difference between a defective appointment and where there
was never an appointment at all.
• (ii). If the board exceeds it authority, the company will not be bound. This is
because the company is only bound by authorised acts.
• However, the company may be bound by estoppel.
• Here, a third party dealing with the company through an unauthorised
director would be trying to show that the company itself is the one which
mislead him to believe hat the director had authority therefore by such
misrepresentation on the company should be held bound to the
unauthorised acts.
• The party relying on estoppel to bind the company need
to establish the following;
• (i). he was induced to enter into the contract in
question by the agent being represented as occupying a
certain position in the company,
• (ii). That the representation was made by person with
actual authority to manage the company, and,
• (iii). That the contract was one that a person in the
position of the agent was held out as occupying would
usually have authority to occupy.
• Freeman and Lockyer v Buckburst Park Properties (1964).- a
director who was never appointed as a managing director assumes
powers of management with the company’s approval.
• Subsequent thereto, he entered into a contract with another.
• The company was held liable to
• the performance in terms of the contract because the nature of the
contract was within the scope of authority of a managing director of
a company.
• The other party was not obliged to enquire whether the person was
properly appointed .it was enough that the Board had allowed the
Director to act as an MD thus misleading the other party to think
that he had authority.
 The Turquand rule
• The principle in the Royal British Bank v Turquand is relevant
here. This principle is known as the TURQUAND RULE.
• if the articles do not prohibit authority, but requires that certain
internal pre-requisites be met before authority exists, and an
outsider dealing with the company cannot with reference to the
public documents (articles, memorandum) to which she/he has
access, establish compliance with such pre-requisites for
authority to exist, the company will be bound to any
transaction/contract involving such a third party regardless of
lack of compliance with the pre-requisites for authority.
• The rule protects bona fide outsiders in that they may assume
that the pre-requisites where complied with.
• Examples of such pre-requisites are;
• Directors may only after prior approval of the general
meeting, conclude loans exceeding a stated amount.
• From the articles we cannot know whether the general
meeting did consent or even whether it was required to.
• The board may delegate powers to committees,
managing directors etc. We cannot by reading the
articles, find out whether person X was appointed
to that position and if so, the power/ authority in
question was in fact delegated to X.
• In terms of the Turquand rule, a bona fide third party
may assume compliance unless (i). He/she knows of no
compliance.
• (ii). the articles prohibit a particular transaction.
• (iii). the third party ought to have suspected lack of authority or
no-compliance, eg. If a transaction clearly does not fall within
the normal functions of the purported agent, or is clearly
outside the company’s capacity (ultra vires).
• The Turquand rule cannot held an outsider to bind the company,
if he/she have realised that the transaction is beyond the usual
scope of the official (purported agent) concerned.
 Conclusion
• Define a director
• Under what circumstances can the shareholders
preform the functions of directors?
• What powers does company directors have?
• Explain the Turquand rule.
 References
• Companies and other Business Entities Act
[Chapter 24: 31].
• Freeman and Lockyer v Buckhurst Park
Properties (Mangal) Ltd [1964] 2 QB 480.
• Royal British Bank v Turquand (1856) 6 E&B 327.
• Salomon v Salomon and Company Ltd [1897] AC
22 (HL).