Legislative Decree No. 21 of 2001 promulgating the Commercial Companies Law, as amended (the “CCL”), imposes specific general duties on a director of a joint stock company. Our guide provides directors with a brief overview of these fundamental duties.
Who is considered a director?
Firstly, it is essential to define who is considered a director. Directors have a range of responsibilities within a company, including overall management and direction. They have the authority to make decisions, establish committees, and ensure compliance with the company’s constitutional documents. The director is responsible for representing the company before authorities and other entities. Directors have the power to appoint, remove, and determine compensation for staff.
What are the eligibility requirements to become a director in Bahrain?
As stipulated in Article 173 of the CCL, to be a board member of a joint stock company, the following conditions must be met by the candidate:
- must have the legal capacity to act;
- must not have been convicted of certain crimes related to bankruptcy, honour, breach of trust, or violation of the law unless they have been reinstated;
- must not be prohibited by the CCL or any other applicable law from assuming a directorship in a joint stock company;
- if they are the chairman or deputy chairman, they cannot simultaneously hold the most senior executive position in the company;
- must meet any additional conditions specified in a regulation that applies to executive, non-executive, and independent directors of non-licensee companies issued by the Minister of Industry and Commerce;
- must meet any additional conditions specified in a regulation that applies to executive, non-executive, and independent directors of licensee companies issued by the Central Bank of Bahrain, subject to Article 65 of the Central Bank of Bahrain and Financial Institutions Law;
- must meet any other conditions specified in the company’s Memorandum of Association or Articles of Association.
What are the duties and responsibilities of directors?
Directors bear significant duties and responsibilities within a company. Their primary role is to act in the best interest of the company. Directors’ duties include and are not limited to:
- Act within their powers.
- Exercise independent judgment.
- Exercise reasonable skill, care, and diligence.
- Avoid conflict of interest.
- Disclose any personal interest in proposed transactions and arrangements.
- Promoting the success of the company is an implied duty.
What additional responsibilities do directors have?
Directors are individually and collectively accountable to shareholders for accomplishing the company’s objectives and purposes. Directors’ primary focus should be on the company’s interests, which outweigh any other interests, including those of individual shareholders they may represent. The Board acts on behalf of all shareholders and must protect and advance the company’s interests while maximizing value.
Transactions with the company
When transactions occur between the company and a board member, it is obligatory to disclose any personal interests. The company is also expected to implement policies to address these interests, which may involve preventing board members with conflicts from participating in the voting process for approving such transactions.
What are the procedures for appointing and removing directors in a company?
Without any specific provisions in the company’s Memorandum of Association, directors can be appointed through written resolutions passed by the Board, shareholder resolutions, or through a power of attorney.
The removal of directors can also be carried out through written resolutions issued by either the Board or the company’s shareholders. These resolutions serve as a means to terminate a director’s position within the company.
Directors play a crucial role in securing a company’s success, making it necessary to select them with great care. Although the CCL outlines the essential duties imposed on directors of joint stock companies, it is advisable to enhance the protection by stating any additional responsibilities in the company’s Memorandum of Association.