The position of a company director in Nigeria has always carried significant legal weight. Under the Companies and Allied Matters Act (CAMA) 2020, the responsibility, authority, and accountability of directors have been carefully regulated. CAMA sets out who can be a director, how they must be appointed, the standard of conduct expected of them, and the consequences of any breach of duty.
No company can be incorporated with the Corporate Affairs Commission (CAC) without meeting the statutory requirement of having at least one director. This rule reflects CAMA’s long-standing emphasis on strong corporate governance and shared managerial responsibility.
Who Is a Director? Meaning and Types
According to Section 868 of CAMA 2020, a director is a person appointed by the company to manage its affairs and make strategic decisions on behalf of the organisation. CAMA recognises several categories of directors, each with unique roles. They include:
1. Non-Executive Director
A director who is not involved in daily operations. Nigerian law expects non-executive directors to provide independent judgment, oversight, and checks on management to ensure transparency and good corporate governance.
2. Managing Director (MD)/Chief Executive Officer (CEO)
The principal officer in charge of the company’s daily business. Under CAMA, the board may delegate powers to the MD/CEO to implement policies, supervise operations, and manage the company in line with board-approved strategies.
3. Chairman of the Board of Directors
Presides over board meetings and ensures the board performs its governance duties effectively. Nigerian corporate governance principles discourage the same person from serving as Chairman and MD/CEO to prevent a concentration of power.
4. Life Director
A director appointed under the Articles of Association to serve for life, unless removed according to the company’s Articles or under CAMA provisions. This is uncommon today but still legally permissible where provided for in the Articles.
5. Alternate Director
A person appointed to act on behalf of a director during the director’s absence. Under Nigerian law, the appointment must be authorized by the Articles of Association or by a board resolution, and the alternate director has the same responsibilities and duties as the original director while acting.
6. Shadow Director
A Shadow Director is a person who is not formally appointed as a director but whose instructions or wishes the appointed directors routinely follow. Under Nigerian law, a shadow director is treated as a director for purposes of duties, liabilities, and accountability. This ensures that individuals who influence the company from behind the scenes cannot evade responsibility.
7. Representative/Nominee Director
A director appointed to represent the interests of a particular shareholder, investor, creditor, or institutional body. Nigerian law recognizes nominee directors, but they must still act in the best interests of the company as a whole, not only the party that nominated them. Their fiduciary duties of care, skill, loyalty, and good faith remain the same as any other director.
Statutory and Fiduciary Duties of a Director
Directors are considered trustees and fiduciaries of the company. This means they must act with honesty, fairness, and in the best interest of the company. These responsibilities evolved from common law, equity, and now CAMA.
The key statutory duties include:
1. Duty of Good Faith and Loyalty
A director must act in the company’s best interest, not for personal gain or external influence.
2. Duty to Avoid Conflict of Interest
A director must ensure that personal interests do not interfere with their responsibility to the company. If any situation arises where a personal interest may conflict with the company’s interest, the director must make a full and immediate disclosure to the board and refrain from participating in related decisions.
3. Duty of Care, Skill, and Diligence
Directors must perform their functions with the care, competence, and attention that a reasonable person in their position would exercise.
4. Duty to Disclose Secret Profits
If a director gains any financial or personal benefit because of their position, whether through contracts, information, or business opportunities, they must disclose this and hand over the profit to the company. Failure to do so may result in restitution and liability for breach of fiduciary duty.
5. Duty to Attend Meetings
Board and general meetings form the foundation of company decision-making. Persistent absence may be grounds for removal.
6. Duty to Exercise Independent Judgment
Directors must make decisions based on merit, not pressure or influence.
7. Duty of Accountability
Directors are responsible for ensuring that the company keeps accurate financial and statutory records, complies with regulatory requirements, and provides truthful information to shareholders and regulators.
Consequences of a Director’s Breach of Duties
When directors misuse their power or fail to do their job properly, they can face serious consequences to protect the company and its stakeholders. A failure to perform these duties can lead to both civil and criminal liability. The law does not permit directors to hide under their office when they act negligently or in bad faith.
Some consequences include:
- Loss of Investment
Directors oversee the company’s daily operations and owe duties to shareholders and investors. When directors breach their duties, investor confidence may decline, leading to reduced funding or withdrawal of investment altogether.
- Civil Liability
A director who breaches fiduciary duties may face legal action, personal liability for losses, and potential removal from the board. They may also be held responsible for financial mismanagement, negligence, or fraud.
- Criminal Liability
Directors can be prosecuted for offences such as insider trading, fraud, or other misconduct. Under the Investments and Securities Act, insider trading attracts fines of twice the profit gained and imprisonment of up to seven years. A convicted director is also disqualified from holding office for 10 years.
- Regulatory Sanctions
Corporate governance failures can trigger regulatory action against both the director and the company. Regulators such as the CBN, SEC, and CAC may impose fines, penalties, or, in extreme cases, shut down the company’s operations.
- Personal Liability and Lifting the Corporate Veil
Normally, a company is treated as a separate legal entity, so directors are not personally responsible for its debts. However, in certain situations, a court can “lift the corporate veil” and hold directors personally liable. This may happen if a director’s actions lead to the company’s insolvency or if they misuse or improperly retain the company’s money or property. Such liability can apply to both current and former directors.
- Penalties for Non-Disclosure of Interest
Failing to disclose a personal interest in company contracts is a criminal offence under CAMA and may result in fines, sanctions, or removal from office.
- Disqualification
Serious misconduct or repeated breaches can lead to disqualification from serving as a director for several years. Directors are therefore required to act with integrity, transparency, and diligence. Failure to meet these standards attracts significant legal and regulatory consequences.
Rights and Privileges of Directors
Directors carry a lot of responsibility, but Nigerian law also gives them important rights to help them perform their duties effectively. These rights include the following:
1. Right to Remuneration
Directors are not automatically entitled to get paid unless the company’s articles or service contract states otherwise. However, CAMA empowers shareholders at a general meeting to approve directors’ compensation.
2. Right to Sitting Allowance and Reimbursement
Directors may receive allowances for attending meetings, as well as reimbursement for travel, hotel, and other legitimate expenses. They are also entitled to refunds for money spent on company business, such as transport, meals, accommodation, or other reasonable expenses.
3. Right to Indemnity
If a director acts honestly and in good faith while performing company duties, the company must protect them from personal loss or legal claims that arise from those actions. This protection is called indemnity.
4. Dual Status
Directors often act as both officers (alter ego) and employees of the company. Their employment contract, if any, will determine salary and benefits. When a director is also an employee, their employment contract determines their salary, leave, benefits, and other entitlements, separate from their director duties.
These rights ensure directors can perform their functions confidently, without fear of unfair personal loss.
Final Thoughts
CAMA 2020 provides a modern framework for understanding directors’ duties, rights, and liabilities in Nigerian companies, aligning local corporate governance with global standards. While directors are given significant authority to manage the company, that authority comes with strong checks because they occupy a position of trust.
For founders, shareholders, and investors, knowing these rules is not just about following the law; it is a tool for protecting the company and ensuring responsible leadership.
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