Most small businesses that have changed their registration status from sole trader to limited liability ask about the roles of the board in its management. Today we highlight the role of the Company Secretary and governance guidelines for the board.
The Corporate Secretary serves as Lead of the Corporate Secretariat and a focal point for communication with the board and management by ensuring that the Board has the proper advice and resources for discharging its fiduciary duty. They are also responsible for:
- issuing notices and requisite documents for all board and sub-committee meetings
- attending board and sub-committee meeting
- accurately recording, safekeeping and maintenance of minutes of board and sub-committee meetings
- advising on corporate governance and legal issues
Corporate governance is regulated by a combination of:
- Legislation and related regulations.
- Rules, guidelines and policies issued by regulatory bodies.
- The constitutional documents of a company (its articles of incorporation, bye-laws and any applicable shareholders’ agreement).
- The common law.
Directors must act in the best interests of the company as they are deemed agents of the company and trustees of the company’s property and assets. They are also trustees of the company’s powers vested in them and must act in utmost good faith in the exercise of those powers. These powers may only be exercised for the company’s intended purposes and not for personal gain or advantage.
The power to manage a company is vested in the directors collectively, subject to any restrictions imposed by the articles, bye-laws or the shareholders agreement of the company. A minimum of two directors is required in private companies and a minimum of three in public companies. There is no maximum limit prescribed but in practice, the size of a board is usually kept to a manageable level. The first directors can be re-elected at the first meeting of the shareholders, subject to the articles of incorporation or the bye-laws.
These directors must guide the management of the business and affairs of the company and certain board duties can be delegated to a single director or subcommittees comprising only directors, or a mix of the company’s directors and executives.
The day-to-day management of the company is carried out through a chief executive officer (CEO), or a managing director who normally acts as an executive director under a contract of employment. In either case, the incumbent usually has a reporting relationship with the board. There is no right of employees to board representation. However, directors should consider the interests of the company’s employees in determining the best interests of the company.
Generally, boards are appointed by the company’s shareholders and must be at least 18 years old. While there are no statutory restrictions on the nationality of directors, the articles of incorporation, bye-laws or unanimous shareholders’ agreements may place restrictions on the nationality of some or all of the board members.
Directors should familiarize themselves and be guided by the Whistleblower Legislation which is intended to protect employees who wish to make disclosures to designated authorities in relation to “improper conduct”, which the Bill defines as:
- Criminal offence.
- Failure to carry out a legal obligation.
- Conduct that is likely to result in a miscarriage of justice.
- Conduct that is likely to threaten the health or safety of a person.
- Conduct that is likely to threaten or damage the environment.
We advise that corporate governance codes should be developed to provide a comprehensive step by step approach to embracing and implementing best practices of corporate governance and should include the roles and responsibilities of board members.
Above all, directors must act honestly and in good faith in the company’s best interests, exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.
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