The role, powers and responsibilities of a director with those of the shareholder and the company secretary

Introduction

The provisions governing the limited liability company in the Companies Act are heavily based on English Law, while provisions governing the partnerships find their roots in Continental Law (French Law). When the first Act in Malta was introduced, it was called the Commercial Partnerships Ordinance and with the new legislation in 1995 it was replaced. Maltese companies had to transform their structures according to the new Act and register with the Registry of Companies in Malta.

The role, powers and responsibilities.

The Director

Executive and non-executive directors

Executive directors – those concerned with the actual day-to-day management of the company. They carry out executive functions in addition to their board duties.

Non-executive directors – those who are not involved in the actual day-to-day management of the company and who do not therefore devote their full time to the company.
De jure and de facto directors

The Companies Act recognises that a director can either be a person who is formally appointed as such to the board (a de jure director) or a person who is not so formally appointed but who in practice assumes to act as director (a de facto director).

The Companies Act of Malta defines a director that is any person that occupies the position of director in a company that carries out substantially the same functions in relation to the direction of the company; directors are responsible for the management and day to day running of the affairs of the company since as a legal entity the company cannot act in any way other than through its directors. The directors must act as a bonus pater familias, they are also deemed to be the agents and mandatories of the company.

The directors are not carry out dealings for self-gain and they should not make a personal profit out of their position unless they would be entitled to do so. When there is a conflict between the directors’ duties to the company and their personal interest or that of others, the directors should not place themselves in this position.

The director of a company has the duty, directly or indirectly to declare the nature of interest to other directors if interested in a contract or proposed contract with the company this can be done at the meeting of directors and the question to enter into contract needs to first be taken into consideration.

A director of a company may not be in competition with the company and without the approval at a general meeting, carry on business on his own or that of others, a director may not be a partner with unlimited liability in another partnership or a director of a company which is in competition with the same company. Breaching this rule, the company may take action against the director who is in such breach, or it can demand payment profits made by him.

The Companies Act therefore establishes a twofold test that is, an objective test and a subjective test and is provided under Article 136A (3)(i) and (ii)

Functions that are carried out and trusted to the director may be expected that the director function must be exercised by a reasonably diligent person and to have the knowledge, experience, and skill. Basically, the director must have the objective standard, and the subjective standard.

The directors must be well informed of the affairs of the company so they would be able to immediately address any issues efficiently and in a timely manner.

Duties of a director are defined in Article 136A of the companies Act.

The Shareholder

The number of shareholders in a company differs on the type of company. A single member private limited company can have a minimum of one shareholder and a private companies or public companies have minimum of two shareholders. The maximum number a private limited liability company is of fifty shareholders.

Shareholders have no legal requirements with respect to nationality or residency under Maltese law and both, holding and nominee shareholding of shares under trust are permitted.

The number of shareholders is established by the Malta Company law. The shareholders are the founders and the owners of a company, and in which names the share certificates are issued when they register the company. If a company is acting as shareholder in a Maltese company, they must also submit information about the company and to appoint a legal representative to act on their behalf. The shareholder of the company will have certain rights and the obligations related to the activity of the business. The rights of a shareholder are to make decisions with respect to the company’s activities and status, to receive a part of the profits the company makes during the year and to receive information about the company’s status and to appoint the company’s directors or managers.

In the Articles of Association, the shareholder may have additional rights, or this can be done through shareholders’ agreements.

The shareholders of a company have also the obligation to pay the minimum capital and they must cover any losses proportionally to their contributions, they can alter the company share capital if needed to do so.

The Company Secretary

The office that is held by the Company Secretary is an administrative role withing Malta companies and it is considered as an officer of the Company. This role may be misleading due to the association which the term ‘administrative’ is given. Company Secretaries do not involve themselves with the management of the Company, this is usually left to the Directors, they still play an important role in the control of its governance through their administrative powers.

With the introduction of the Companies Act in 1995 Maltese Companies require to have a Company Secretary both if a public limited or a private limited company. One cannot incorporate or, for that matter, operate a company where the office of Company Secretary is vacant.

The office of Company Secretary is only allowed trough a natural person which it’s in contrast with the directors where it is permissible to be a corporate director.

Company Secretary     is appointed during the company’s incorporation through its Memorandum and Articles of Association; it is the shareholders of the company subscribing to the initial share capital who appoint the Company Secretary.  The Memorandum and Articles of Association will show the details of the individual who is to hold the office of Company Secretary, in particular the name and surname, residential address, and identity card number. A copy of the document of identification is furnished to the Registry of Companies for their records.

Company Secretaries are appointed by the directors and if the office becomes vacant the director is obliged to appoint and nominate a new Company Secretary within 14 days.

The Companies Act in the first Schedule sets out a number of duties that is assigned to the Company Secretary these are set as to ensure that proper notice of the meeting and agenda are circulated within the period, normally this is to be specified in the articles of association, ensuring that the forms and or the appointment of alternative director, it might be required that these forms are sent to be received in original format by the company or other person and must be sent up to forty-eight hours before the meeting for this to be effective and to be scheduled at the meeting.

Also, the company secretary needs to inform the chairman of a meeting whether a quorum for the meeting is present and ensuring that the meeting proceeds in accordance with the agenda and to take minutes of events of the board and of any general or extraordinary meetings held, which are then kept in the company minute book and to record any resolutions put to vote.

Conclusion

Except when a company is insolvent or to be insolvent the directors have the duty and responsibility toward the creditors, staff that are still owed salary and not to the shareholders. This will also involve the company secretary as the role is tasked to make sure all execution of the board plans is implemented legally, efficiently, and correctly.

The roles of shareholders and directors are completely different. The shareholders own the company, and the directors manage it. A director does not need to be a shareholder and a shareholder has no right to be a director unless the article says so.

The company law requires some decisions to be made by the directors in board meetings and others to be made by the shareholders by written resolutions or by resolutions passed at general meetings. If a decision has to be made by the board meeting or at the general meeting this depends on the provisions of the Companies Act or the article of association.

To summarise what has been stated, the role of the Director is to manage the company, to act in good faith and in the best interest of the Company, the role of the Company secretary is to administer the Company and the shareholders obligations is to pay up any share capital, make up for losses and to attend and vote at general meetings of the company.

The table below shows the different duties and obligations between the directors, shareholders, and company secretary.