A company requires directors to run the day-to-day business of the company. In Kenya, the Companies Act 2015 states that a private company must have at least one director, while a public company must have at least two directors. It also states that the company, in appointing directors, must ensure that at least one of them is a natural person – a human being. This gives lee way to have legal persons, like other companies or a corporation, as part of the directors of a company.
How are directors appointed?
There are three ways in which directors can appointed under the Act, for both private and public companies:
- Through the company memorandum of association.
At formation of the company, the Act requires that the company should state the company officials. The persons named in the memorandum of association as subscribers and consequently in the CR1 form as directors, are the first directors of the company.
- By an ordinary resolution.
During a general meeting, the members of the company are allowed to vote on appointment of directors of the company. This is done where an ordinary resolution for appointment of directors is part of the agenda to be discussed at the meeting, and a notice of this resolution has to be given together with the notice of the meeting.
Here, members of the company vote on the appointment of the directors named in the resolution. If the resolution is passed, by a simple majority, then the persons subject to the resolution are seen to be appointed as directors of the company.
- By a decision of other directors.
There are instances when there is a vacant office of the director or when the existing directors need to add another director. In a meeting of the board of directors, the existing directors can appoint directors to either fill the vacancy or as an addition to the existing directors.
How can directorship be terminated?
When directors are appointed, particularly through an ordinary resolution, there is no limitation as to tenure. The directors appointed in this way can stay in the office for as long as they want. However, directorship can be terminated at any time, and the termination can either be voluntary or forceful-by operation of the law.
A director can voluntarily terminate their directorship two ways through:
A director can resign from acting as a director at any time, by giving notice of their resignation to the other directors. Once the time of the notice lapses, the person ceases to be a director of the company in question.
When a director reaches the age of retirement, they are at liberty to resign from office of director. This process, especially in private companies, is voluntary since the Act does not specify the age of retirement.
On the other hand, forceful termination of directorship can be done through:
- Removal of director through a company resolution.
A director can be removed from office at any time by the company before the end of the period in which they are to be in office. The company does this by giving a special notice of the resolution to remove the person as a director of the company. The director is allowed to oppose the removal and give either oral or written representation in opposing the removal.
The grounds for removal of a director from office through an ordinary resolution could be for any reason contravening the director’s duties or obligations to the company, like being absent for more than 6months for directors’ meetings held in that time without the permission of directors.
- Bankruptcy of the director.
According to the law, any person who is bankrupt can not hold office as a director of a company. If a director becomes bankrupt or enters into an arrangement with their creditors, the person ceases to be a director of the company.
The Act disqualifies a person of unsound mind from acting as a director of a company. Therefore, where a director of a company starts suffering from metal illness such as dementia or is declared insane, they stop being a director of the company.
- Retirement by rotation.
In public companies, all directors in office are required to retire at the first annual general meeting. At all other consecutive annual general meetings, one third of existing directors are required to resign. All those directors who have been in office longest d=since their appointment or reappointment are to retire first
- Death of the director.
Whenever a person dies, they automatically cease to be directors of the company.
The Companies Act 2015 requires that whenever a director is appointed or ceases to hold office through any reason stated above, their appointment to or cessation from office must be notified to the registrar of companies. Companies need to ensure that the registrar is notified, in the prescribed form, to prevent any penalties to the company and the officers of the company.