Before explaining the general principles of a directors' function in office the reader needs to be informed about the following issues.

Everybody can become a company director as long as the person is of legal age, is of sound mind, or otherwise proven not to be able to act. The director, however, has also got to prove he has an absolutely * clean criminal record. * The reader has the right to require evidence of this. Note the above is also relevant for trusts.

Fiduciary Duty
A director owes a fiduciary duty to the company and must exercise his powers in the best interests of that company.

Duty to avoid a conflict of interest
A director has a duty to avoid conflicts of interest and should avoid representing the company or trying to involve the company in a situation where he has, or may have, a personal interest.

Duty not to make a personal profit
A director should not profit personally from his position unless he is authorised by the company to do so. Any unauthorised profit will usually belong to the company and not to the director.

General Duty of Care
Directors have a common law duty of care and must be able to show that they are reasonably competent. The most commonly quoted case on this subject in the UK case of Re City Equitable Fire Insurance Co Ltd (1925) which established the following principles:

i) A director is expected to show the degree of skill which should reasonably be expected from a person of his knowledge and experience.

ii) A director is expected to attend board meetings when able but has no duty to concern himself with the operation of the company at other times;

iii) A director can usually be expected to leave the normal day-to-day business of the company to the management team of that company.

Statutory Duties
There may be duties which are imposed by local statutes which a director would be expected to obey, such as the duty to declare personal interests in a proposed contract.

Additional Duties
The articles of association might impose further duties on the directors of a company and in view of this, it is important that the directors be fully aware of all of the terms and conditions which are contained in the articles.

Directors' Powers
As we have already mentioned, the directors' powers will be contained in the articles of association and will usually be sufficient to enable them to manage the business of the company to the best of their ability.

Some articles of association will contain a full list of the powers granted to the directors although it is common for a general clause to be inserted. This basically attempts to cover all eventualities by enabling the directors to perform any tasks or business, provided that whatever is conducted is considered by the board to be in the best interests of the company.

Examples of some of the powers which the directors would usually exercise are:

a) To borrow or to charge assets of the company.
b) To open bank accounts or execute documentation required to open other types of accounts (such as investment management or custody accounts);
c) To allot shares
d) To remove a director from the board and/or appoint a replacement or additional director;
e) To bind the company in respect of executing contracts, deals or arrangements;
f) To appoint agents or other officers;
g) To declare dividends to the members;
h) To call meetings of the members to discuss particular business matters which require the approval of the members.

The directors should only exercise their powers in the best interests of the company and their decisions should only be taken after the matter in hand has been discussed at a meeting of the directors.

Company Directors

The reader may not be aware that there are different types of directors, regardless of the jurisdiction and type of company which you may have chosen or plan to choose.

Here are some of the types of Directors that offshore companies may provide:

Association Director
An employee of a company might be appointed as an associate director to reward him for his efforts although the position would not normally be intended to carry with it the usual powers given to board members. Associate directors would not usually be entitled to receive notices of board meetings and would not be involved in the decision making process.

Non-executive director
A non-executive director will not play a part in the day-to-day administration of the company. It is common for a well known member of the local business community to be appointed to such a position, usually with the objective of trying to project a better image locally for the company.

Shadow director
This term is often applied to a person on whose instructions the directors of a company usually act.

Alternate Director
This is a person who is appointed by a director to act in his absence at board meetings. An alternate director is usually considered to be a full member of the board and will have the same duties and powers of other directors.

Nominee Directors
A number of service providers state in their marketing literature that they will provide 'nominee directors' to act on the boards of those companies for which they provide corporate services. Indeed, some of the individuals who have been appointed to act as directors of their clients' companies also view themselves as nominees on the basis that they only ever act on the instructions of their clients.

However, there is no such thing or person as a 'nominee director' either in the eyes of the law or in the eyes of the authorities. Whoever accepts the post as director must expect to be bound by the usual duties expected of a director and it is no defence in law to say that he was only acting on the instructions of another! He will be responsible for his actions as director and may be liable for any inactions.

Method of Appointment, Removal and Retirement
A summary of the usual methods by which directors can be appointed, removed or retired by specific requirements in their local centre follows.

Appointment
Often, the person who has consented to act as a first director of a company will be deemed to be appointed on the incorporation of the company. However, in some centres there is a requirement that only the subscribers are authorised to appoint the first directors. The articles of association would usually have to be checked to discover just who can appoint the first directors on incorporation.

After the first directors have been appointed, the directors themselves will usually have the power to appoint additional directors. The members will also usually have the power to appoint directors.

Prior to making any appointment of new or additional directors, the articles should be reviewed to check whether there are any special requirements which must be fulfilled, such as the director having to be a member of the company or whether a maximum number of board members has been fixed. The articles might also specify that persons of a particular nationality are excluded from acting.

In addition, the board members should satisfy themselves that the intended director is fit and proper to act alongside them and that he appears competent and able to fulfil the role expected of him.

Removal
A director could usually be removed by the other directors or by the members (which would probably require a special resolution). The articles might specify under what circumstances a director would be removed, such as failing to attend a certain number of board meetings or suffering from an incapacity which would prevent him from continuing in office. There would, of course, be the opportunity to remove a director who was not considered to be acting in the interests of the company.

Retirement
Directors will also have the right to retire from the board and once again the articles will cover the requirements which must be met to enable the resignation to be effective. Usually a director who wishes to retire must send a letter to the company at its registered office confirming his wish to retire. The articles would then cover whether the resignation would be effective from the date the notice was received by the company or after the board has met to approve it.

Clearly, there will be situations where a new director has to be appointed to replace an outgoing director (whether through removal or retirement) as there must always be at least the minimum number of directors in office as specified in the articles.

Action required following changes to the directors
It would be usual for a meeting of the directors to be held to confirm the changes and record them in the company's records. The register of directors will have to be updated (assuming that such a register will be required in the offshore centre concerned) and possibly the company's bankers will also have to be notified on the basis that the bank mandate may have to be updated.

Whilst on the subject of the various ways of appointing a director it would be wise to inform the reader of how a director manages an offshore company. I therefore outline some brief information which may be of interest.

Directors of Managed Offshore Companies
Whilst on the subject of directors it would be useful to spend a little time considering the pressures which are sometimes put to bear on directors of offshore companies which are managed by agents (i.e. managed companies).

Clearly, the biggest influence which is usually brought to bear will be from the beneficial owner of a company who will often want, what he may term, 'his' directors to act in a particular manner or to conduct a particular business transactions on his authority.

In fairness to the client, he will be paying the invoices for the directors services and may see no harm in demanding that the agents perform as he instructs. (a term that is not accepted within the offshore industry). It can be difficult to impress upon such clients the concept of management and control and the need for this to rest with the directors.

Many of the activities or actions which a director of a managed company will be asked to perform will be reasonable and could be considered to be in the best interests of the company. However, the difficulty arises when the director believes that he is being asked to do something which is clearly not in the interests of the company or perhaps which is not in the interests of his organisation. There are three choices available. One would be to resign from the board (and probably at the same time sever the provision of all other corporate services for that client). The second option is to refuse to act as instructed. The third option is to carry out the actions despite the director's reservations.

The first option may perhaps be the best solution although some service providers may prefer to try the second or even third options before arriving at the situation where the business will be lost.