Legal Position of Directors

Company law has long struggled to pin the legal position of a director to a single, familiar label, because directors genuinely combine features of several different legal relationships depending on which of their functions is being examined at a given moment. This is a frequently examined theme in Gujarat board Std 12 Secretarial Practice precisely because no single word — agent, trustee, or employee — is fully accurate on its own.

In many respects, directors act as agents of the company. When directors enter into contracts, sign documents, or otherwise deal with third parties on the company's behalf and within their authority, the ordinary law of agency applies: the company (the principal) is bound by the acts of its directors (its agents) done within the scope of the authority conferred on them by the Articles, the Board, or the Act, and directors acting within that authority do not incur personal liability on such contracts. This is the aspect of a director's position that most closely resembles the Company Secretary's own agency role for ministerial acts, discussed in the preceding chapter.

In other respects, directors are treated as trustees of the company's money and property. Directors handle funds and assets that belong to the company and, ultimately, to its shareholders — not to the directors personally — and the law expects directors to deal with that money and property with the same standard of honesty, care, and accountability a trustee owes to a beneficiary. This trustee-like character underlies the directors' duty not to misapply company funds, not to make secret profits from their position, and to account for any personal gain improperly obtained through their office. …