SHAREHOLDERS Vs DIRECTORS

Dr. AbdelGadir Warsama Ghalib

SHAREHOLDERS Vs DIRECTORS

Basically, the Board of Directors of the company, and according to the terms of the Company Law is vested with all necessary legal powers to manage the affairs of the company. Legally speaking, the Board of Directors shall be elected by the General Assembly of the shareholders in the concerned company. Normally, the election of the first Board of Directors takes place during the first meeting scheduled for the shareholders.

In certain instances the first Board of Directors is chosen by and from the Founders of the company; however this Board shall be in place for a certain period after which a Board of Directors shall be properly and appropriately elected.

The Board of Directors shall initially be responsible, almost in all aspects, to the general assembly of the shareholders. In other words, the general assembly of the shareholders shall be the legal authority to hire and fire the Board of Directors of the company.

The general assembly of the company, also, has the legal power to check and balance, if we could say, the performance and general conduct regarding the activities of the Board of Directors. Due to the (check and balance rule), the Board of Directors of the company shall submit, at the end of each year, a report to the general assembly of the shareholders.

This report is known as the annual report of the company. The annual report shall, normally, be presented in due time by the Chairman of the Board of Directors to the general assembly of the shareholders.

Legally speaking, the agenda for the annual meeting shall contain and include items to be discussed by the shareholders such as extending the term of the current Board of Directors, appointment of the auditors of the company, and other items including specific resolution to be adopted by the general assembly of the shareholders absolving the Board of Directors from any liability whatsoever. This resolution is of paramount legal significance and therefore it should be very clear, accurate and very specific in absolving the members of the Board of Directors of the company from any administrative, financial and legal liability.

This specific resolution, I could strongly say, constitutes the most important legal power and or authority exercised or to be exercised by the shareholders of the company. The shareholders, generally speaking, are empowered to discuss the overall performance of the Board of Directors of the company, and by doing such exercise; they should reach a clear decision and conclusion stating that the Board of Directors of the company had clearly performed their duties satisfactorily and appropriately.

A question arises here: What are the legal consequences of such resolution? In case the shareholders of the company issue the required resolution absolving the members of the Board of Directors from all legal liabilities, this means that the members of the Board of Directors are not, by all means, personally liable or responsible for all the acts and deeds that they have taken or performed on behalf of the company during and all through their tenure ship.

The legal effect of this important resolution is of great significance because it (the resolution) takes the responsibility from the members of the Board of Directors and puts it on the company. In other words the company as an institution, formed according to the law, shall face any claim raised by any aggrieved party and, also, shall pay any expenses or compensation whatsoever.

This comes from the fact that the Chairman and other members of the Board of Directors, based on the above mentioned resolution passed by the shareholders of the company, are legally presumed clean and accordingly they are absolutely free from any obligation towards the company and other third parties.

It has been a practice and in fact it has been going on for a long time, that shareholders blindly issue resolutions absolving the members of the Board of Directors. This is as if the Board of Directors has got a carte blanche from the shareholders of the company. However, we say that this should not be the case and the shareholders should be very careful and meticulous with regard to their rights, particularly the right to absolve members of the Board of Directors from their obligations or liabilities, if any.

Another question that arises here is: What are the limits of this important resolution? Legally speaking, the members of the Board of Directors are protected by the resolution, from any liability, provided that their negligent acts are not under any protection whatsoever.

Gross negligence is the responsibility of the negligent person, or group of persons, who should face the consequences of their negligent mistakes. In this respect, we say the tortuous liability is maintained and any person may have the right to sue the members of the Board of Directors provided that he proves their negligence and the particular damage that happened to him due to the direct result thereof.

However, I have to stress here that, in case the general assembly of the shareholders of the company ratified that acts performed by the Board of Directors, then the civil right is barred after certain specific period from the date of the general assembly. This issue of ratification highlights a very important legal point, that is to say, are the shareholders of the company responsible due to their ratification of any particular act? The answer is, undoubtedly, yes.

Due to the important legal point we say and advice the shareholders to be very careful and measure everything appropriately before granting the (resolution of freedom), if we could say, to their Board of Directors.

This point is very important because the ratification waives or abolishes the legal liability from the members of the Board of Directors and, in this case, the company should be ready to face any claim raised by any third party. Shareholders, therefore, are obliged to perform such responsibility in due care, fairness and utmost care..

Dr. AbdelGadir Warsama Ghalib

LEGAL COUNSEL

Email: awghalib@hotmail.com