The sections, word for word
Every section on this subject, exactly as printed in the Official Gazette (Act No. 3 of 2020). The explanation follows beneath.
Section 87. Division of powers between general meeting and board of directors
(1) A company shall act through its members in general meeting or its board of directors or through officers or agents appointed by, or under authority derived from, the members in general meeting or the board of directors.
(2) Subject to the provisions of this Act, the respective powers of the members in general meeting and the board of directors shall be determined by the company’s articles.
(3) Except as otherwise provided in the company’s articles, the business of the company shall be managed by the board of directors who may exercise all such powers of the company as are not by this Act or the articles required to be exercised by the members in general meeting.
(4) Unless the articles otherwise provide, the board of directors, when acting within the powers conferred upon them by this Act or the articles, is not bound to obey the directions or instructions of the members in general meeting provided that the directors acted in good faith and with due diligence.
(5) Notwithstanding the provisions of subsection (3), the members in general meeting may—
(a) act in any matter if the members of the board of directors are disqualified or unable to act because of a deadlock on the board or otherwise ;
(b) institute legal proceedings in the name and on behalf of the company, if the board of directors refuse or neglect to do so ;
(c) ratify or confirm any action taken by the board of directors ; or
(d) make recommendations to the board of directors regarding action to be taken by the board.
(6) No alteration of the articles invalidates any prior act of the board of directors which would have been valid if that alteration had not been made.
Section 88. Delegation to committees and managing directors
Unless otherwise provided in this Act or in the articles, the board of directors may—
(a) exercise its powers through committees consisting of such members of their body as they think fit ; or
(b) from time to time, appoint one or more of its members to the office of managing director and may delegate all or any of its powers to such managing director.
Section 89. Acts of the general meeting, board of directors, or of managing directors
Any act of the members in general meeting, the board of directors, or a managing director while carrying on in the usual way the business of the company, shall be treated as the act of the company itself and the company is criminally and civilly liable to the same extent as if it were a natural person : Provided that—
(a) the company shall not incur civil liability to any person if that person had actual knowledge at the time of the transaction in question that the general meeting, board of directors, or managing director, as the case may be, had no power to act in the matter or had acted in an irregular manner or if, having regard to his position with or relationship to the company, he ought to have known of the absence of such power or of their irregularity ; and
(b) if in fact a business is being carried on by the company, the company shall not escape liability for acts undertaken in connection with that business merely because the business in question was not among the business authorised by the company’s memorandum.
Section 90. Acts of officers or agents
(1) Except as provided in section 89 of this Act, the acts of any officer or agent of a company shall not be deemed to be acts of the company, unless—
(a) the company, acting through its members in general meeting, board of directors, or managing director, shall have expressly or impliedly authorised such officer or agent to act in the matter ; or
(b) the company, acting as mentioned in paragraph (a), shall have represented the officer or agent as having its authority to act in the matter, in which event the company shall be civilly liable to any person who has entered into the transaction in reliance on such representation unless such person had actual knowledge that the officer or agent had no authority or unless having regard to his position with or relationship to the company, he ought to have known of such absence of authority.
(2) The authority of an officer or agent of the company may be conferred prior to any action by him or by subsequent ratification, and knowledge of such action by the officer or agent and acquiescence by all the members of the company or by the directors or by the managing director for the time being, shall be equivalent to ratification by the members in general meeting, board of directors, or managing director, as the case may be.
(3) Nothing in this section shall derogate from the vicarious liability of the company for the acts of its servants while acting within the scope of their employment.
Section 91. When provision exempting officer or other person from liability to the company is void
(1) Any provision, whether contained in the articles of the company or in any contract with a company or otherwise, for exempting any officer of the company or any person employed by the company as auditor from, or indemnifying him against any liability which by virtue of any rule of law would otherwise attach to him in respect of any negligence, default, or breach of trust of which he may be guilty in relation to the company, is void.
(2) Notwithstanding the provisions of subsection (1), (a)—
(a) person shall not be deprived of any exemption or right to be indemnified in respect of anything done or omitted to be done by him while any such provision as mentioned in that subsection was in force ; and
(b) company may, in pursuance of any such provision as mentioned in subsection (1), indemnify any such officer or auditor against any liability incurred by him in defending any proceeding, whether civil or criminal, in which judgment is given in his favour or in which he is acquitted or in connection with any application under section 740 of this Act in which relief is granted to him by the Court.
Section 92. Abolition of constructive notice of registered documents
Except as mentioned in section 223 of this Act, regarding particulars in the register of particulars of charges, a person is not deemed to have knowledge of the contents of the memorandum and articles of a company or of any other particulars, documents, or the contents of documents merely because such particulars or documents are registered by the Commission or referred to in the particulars or documents so registered, or are available for inspection at an office of the company.
Section 93. Presumptions of regularity
A person dealing with a company or with someone deriving title under the company, is entitled to make the following assumptions and the company and those deriving title under it shall be estopped from denying their truth that—
(a) the company’s memorandum and articles have been duly complied with ;
(b) every person described in the particulars filed with the Commission pursuant to sections 36 (4) (c), 319 and 337 of this Act as a director, managing director or secretary of the company, or represented by the company, acting through its members in general meeting, board of directors, or managing director, as an officer or agent of the company, has been duly appointed and has authority to exercise the powers and discharge the duties customarily exercised or performed by a director, managing director, or secretary of a company carrying on business of the type carried on by the company or customarily exercised or performed by an officer or agent of the type concerned ;
(c) the secretary of the company, and every officer or agent of the company having authority to issue documents or certified copies of documents on behalf of the company, has authority to warrant the genuineness of the documents or the accuracy of the copies so issued ; and
(d) a document has been duly sealed by the company if it bears what purports to be the seal of the company attested by what purports to be the signatures of two persons who, in accordance with paragraph ( assumed to be a director and the secretary of the company : Provided that a person shall not be entitled to—
(i) make such assumptions, if he had actual knowledge to the contrary or if, having regard to his position with or relationship to the company, he ought to have known the contrary, and
(ii) assume that any one or more of the directors of the company have been appointed to act as a committee of the board of directors or that an officer or agent of the company has the company’s authority merely because the company’s articles provided that authority to act in the matter that may be delegated to a committee, an officer or agent.
Section 94. Liability of company not affected by fraud or forgery of officer
Where, in accordance with sections 89-93 of this Act, a company would be liable to a third party for the acts of any officer or agent, the company shall, except where there is collusion between the officer or agent and the third party, be liable notwithstanding that the officer or agent has acted fraudulently or forged a document purporting to be sealed by or signed on behalf of the company.
What this means
Short answer
A company acts through its members in general meeting or its board, or through officers and agents they appoint (section 87(1)). Acts of the general meeting, the board or a managing director in the usual course of business are the company’s own acts (section 89). Acts of other officers and agents bind the company only if authorised or held out (section 90).
Who decides what
Subject to the Act, the articles set the respective powers of the members in general meeting and the board. Unless they say otherwise, the board manages the company and may exercise every power not required to be exercised by the members, and is not bound to follow the members’ directions if it acts in good faith and with due diligence (section 87(2) to (4)). The members can still act where the board is disqualified or deadlocked, start legal proceedings if the board refuses to, ratify the board’s actions and make recommendations (section 87(5)). An alteration to the articles does not invalidate a prior board act that was valid when done (section 87(6)). The board can act through committees and appoint a managing director to whom it delegates powers (section 88).
When the company is liable
Under section 89, any act of the members in general meeting, the board or a managing director while carrying on the company’s business in the usual way is treated as the company’s act, and the company is criminally and civilly liable as if it were a natural person. Two limits apply. The company is not civilly liable to a person who actually knew, or ought to have known given his position, that the body had no power or acted irregularly. And the company cannot avoid liability for acts connected with a business it is in fact carrying on merely because that business was outside its memorandum.
Officers and agents
An officer or agent’s acts are the company’s only if the company, through the members, the board or a managing director, expressly or impliedly authorised him, or represented him as having authority. In the second case the company is civilly liable to anyone who relied on the representation, unless he knew, or ought to have known, that the authority was missing (section 90(1)). Authority can be given in advance or by ratification, and knowledge and acquiescence by all the members, the directors or the managing director counts as ratification (section 90(2)). The company is also vicariously liable for its employees acting within the scope of their employment (section 90(3)).
No exemption from liability for negligence
A provision in the articles or any contract that exempts an officer or auditor from, or indemnifies him against, liability for negligence, default or breach of trust is void (section 91(1)). A company can still indemnify an officer or auditor for the costs of defending proceedings where he wins, is acquitted, or is granted relief by the court (section 91(2)).
Protection for people dealing with the company
- Nobody is treated as knowing the contents of the memorandum, articles or other registered documents just because they are registered or available for inspection, except for the register of charges (section 92).
- A person dealing with the company can assume that its memorandum and articles have been complied with, that people shown in filings as directors, managing director or secretary were duly appointed and have customary authority, that the secretary and authorised officers can certify documents, and that a document bearing the company seal attested by two people who can be assumed to be a director and the secretary was duly sealed (section 93). That does not apply if he knew otherwise or ought to have known.
- Where the company would be liable for an officer’s or agent’s acts, it stays liable even if the officer acted fraudulently or forged a seal or signature, unless the third party colluded (section 94).
Questions and answers
Who manages a company?
The board of directors, unless the articles say otherwise. It may exercise all powers not required to be exercised by the members (section 87(3)).
Is a company bound by acts of its officers and agents?
Only if it authorised them, expressly or impliedly, or represented them as having authority, unless the other person knew or ought to have known there was no authority (section 90).
Can a company escape liability if an officer forged a signature?
Not where the company would otherwise be liable, unless the third party colluded with the officer or agent (section 94).
Can the articles exempt directors from liability for negligence?
No. Such a provision is void (section 91(1)).
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