What are the legal duties of Directors in Ghana
In Ghana, the role of a company director is vital to the success and governance of the organization. Directors are appointed to manage the affairs of the company, make strategic decisions, and ensure compliance with legal and regulatory requirements. However, the position of a director also comes with a set of legal obligations and responsibilities. Understanding these duties is crucial for both current and prospective directors to ensure they operate within the law and safeguard the interests of shareholders and other stakeholders. This article explores the key duties of directors under Ghanaian law, specifically as stipulated in the Companies Act, 2019 (Act 992) and other relevant legal frameworks.
1. Duty of Care and Skill
Under Ghanaian law, directors are expected to exercise a reasonable degree of care, skill, and diligence in the performance of their duties. This means that directors must act in a manner that is in line with what a reasonably diligent person with general knowledge, skill, and experience would do in a similar position. Directors are expected to understand the company's business, actively participate in board meetings, and make informed decisions.
This duty also implies that directors should seek professional advice where necessary, particularly in areas outside their expertise. A failure to exercise this duty of care and skill could lead to liability for losses the company incurs due to the director's negligence or inattention.
What can Directors do in this case?
Stay Informed: Directors should be knowledgeable about the company’s operations, finances, and key performance indicators. They should stay informed about industry trends, legal changes, and other factors that may impact the business.
Make Informed Decisions: Before making decisions, directors should gather all relevant information, seek expert advice if necessary, and carefully evaluate the potential impact on the company.
Participate Actively: Directors should attend board meetings regularly, engage in discussions, and contribute to decision-making processes. They are expected to ask critical questions and challenge assumptions to ensure that the board makes sound decisions.
2. Fiduciary Duty to Act in Good Faith and in the Best Interests of the Company
Directors in Ghana owe a fiduciary duty to the company, meaning they must act honestly, loyally, and in the best interests of the company and its shareholders. This duty is central to corporate governance and includes the obligation to prioritize the company’s interests over personal interests.
Directors should avoid conflicts of interest, such as engaging in transactions where they stand to gain personally at the expense of the company. Where such a conflict arises, directors are required to disclose it and, in most cases, recuse themselves from the decision-making process related to the conflict. Failing to act in the best interest of the company can lead to legal action against the director and may result in personal liability.
What can Directors do?
• Prioritizing the Company’s Interests: Directors must put the interests of the company and its shareholders above their own personal interests. They should avoid using their position for personal gain or advancing their own agenda.
• Acting in Good Faith: Directors should act honestly and make decisions they believe are in the best interests of the company, even if those decisions are difficult or unpopular.
• Avoiding Conflicts of Interest: Directors must avoid situations where their personal interests conflict, or could potentially conflict, with the interests of the company. If a conflict does arise, directors are required to disclose it and, where necessary, recuse themselves from decision-making on the matter.
3. Duty to Act Within Powers
Directors must operate within the powers conferred upon them by the company's constitution and the Companies Act, 2019 (Act 992). They are not permitted to act beyond their authority or make decisions that the company’s constitution does not permit. Directors must also respect the limits of their authority as defined by shareholders and the board, ensuring that they do not engage in ultra vires (beyond power) activities. Acting outside their powers can render directors personally liable for any losses the company suffers as a result.
Make sure you are
• Operating Within the Boundaries of Authority: Directors are only authorized to make decisions and take actions that fall within the powers specified by the company’s constitution and the Companies Act.
• Respecting Shareholder and Board Limits: Directors must respect the authority and powers vested in shareholders and the board. They cannot make decisions or commitments on behalf of the company without proper authorization.
4. Duty to Avoid Conflicts of Interest
Ghanaian law imposes a strict duty on directors to avoid situations where their personal interests conflict, or may conflict, with the interests of the company. Conflicts of interest may arise in instances where a director has a financial interest in a transaction the company is considering or if the director is involved with a competing business.
Directors are required to disclose any potential conflicts of interest to the board and, in some cases, to shareholders, depending on the severity and nature of the conflict. By disclosing conflicts and abstaining from related discussions or votes, directors help protect the company’s integrity and ensure transparency in decision-making.
This entails:
• Disclosure of Conflicts: Directors must disclose any interest they have in contracts, transactions, or arrangements that involve the company. This allows the board to assess whether the director should abstain from discussions or decisions on the matter.
• Abstaining from Decisions in Conflict: When a conflict of interest arises, the director must not participate in decision-making related to the conflict. In cases where the conflict is significant, the director should recuse themselves from the entire decision-making process.
5. Duty to Maintain Confidentiality
Directors by reason of their position, have access to sensitive information about the company, including financial data, strategic plans, and operational details. Under Ghanaian law, directors have a duty to maintain confidentiality regarding all non-public information about the company. They must not disclose or misuse this information for personal gain or to the detriment of the company.
Breaching confidentiality can damage the company’s reputation and competitive advantage and may expose directors to legal action from the company or its shareholders. Directors should ensure that they handle all sensitive information responsibly and that they only share it with authorized persons within or outside the company.
The duty to maintain confidentiality includes:
• Protecting Non-Public Information: Directors must not disclose or misuse confidential information for personal gain or for the advantage of third parties.
• Using Information Responsibly: Directors should use confidential information only for the purpose of fulfilling their duties to the company.
6. Duty to Act for a Proper Purpose
Directors are expected to use their powers for the proper purpose as defined by the company’s objectives and the law. This duty is particularly relevant when directors are issuing shares or taking actions that may alter control over the company. Directors should ensure that their actions serve legitimate corporate purposes, such as raising capital or expanding business operations, rather than serving personal or external/pressured interests.
The duty to act for a proper purpose helps ensure that directors do not misuse their authority, particularly in cases where the company’s control or ownership structure may be affected. Directors acting for improper purposes may be subject to legal action and be held accountable for any resulting damages.
This duty includes:
• Issuing Shares for Valid Purposes: For example, directors should only issue shares to raise capital, expand the business, or pursue other legitimate company objectives—not to manipulate control of the company.
• Using Authority Appropriately: Directors should use their powers in ways that align with the company’s objectives and benefit the shareholders as a whole.
7. Duty to Prepare and Maintain Accurate Records
In Ghana, directors have a legal responsibility to ensure that accurate records are kept and maintained for the company’s activities, particularly financial records. This duty involves overseeing the preparation of accurate financial statements and ensuring that the company complies with tax, accounting, and regulatory requirements. Directors must ensure that proper books of account are kept, always reflecting the company’s true financial position.
This duty also extends to filing returns and documents with the Registrar of Companies within the stipulated deadlines. Non-compliance with this duty can lead to penalties, fines, and in extreme cases, criminal liability for directors.
Every board member must:
• Financial Records: Directors must ensure that the company’s financial statements and records are accurate, comply with legal requirements, and give a true view of the financial position of the company.
• Regulatory Filings: Directors are responsible for ensuring that the company files necessary returns and documents with the Registrar of Companies and other regulatory bodies on time.
• Record-Keeping: Proper books of account and other records must be kept as required by law to ensure transparency and accountability.
8. Duty to Act in Compliance with the Law
Directors are required to ensure that the company complies with all relevant laws, regulations, and standards, including the Companies Act, tax laws, labor laws, and environmental regulations. This duty of compliance is critical, as failure to adhere to legal requirements could lead to penalties, fines, and legal action against the company and, in some cases, individual directors and other officers of the company.
Directors should be familiar with the legal requirements affecting their industry and seek professional advice when necessary to ensure compliance. This duty not only protects the company from legal consequences but also enhances its reputation and promotes good governance.
What are the Consequences of Breach of Directors’ Duties
In Ghana, failure to fulfill these duties can have serious consequences. Directors who breach their duties may face personal liability, and in some cases, criminal sanctions, depending on the nature and severity of the breach. Shareholders may bring a derivative action against directors who act against the company’s best interests, and the Registrar of Companies may impose penalties for regulatory non-compliance.
Moreover, a director who engages in fraudulent activities or serious misconduct may be disqualified from holding a directorial position in any Ghanaian company, further affecting their reputation and career.
Directors play a pivotal role in ensuring the success, integrity, and compliance of companies in Ghana. The duties of directors under Ghanaian law emphasize accountability, transparency, and loyalty to the company’s interests. By understanding and fulfilling these duties, directors can protect the company, build trust with shareholders and stakeholders, and contribute to a strong corporate governance culture. Directors who take their responsibilities seriously help establish a foundation of good governance, which is essential for the long-term growth and sustainability of any business in Ghana.
HOW WE CAN HELP
If you're a director or a company seeking to ensure compliance and effective governance, appointing a diligent and proactive Company Secretary is essential. A dedicated Company Secretary can provide timely reminders, address potential issues in Board meetings, and advise when directors may be acting outside their authority or are at risk of breaching statutory obligations.
At Scribe Advisory & Consulting, we offer professional guidance tailored to Ghanaian corporate law to support directors and companies in running their Boards effectively. Our services are designed to help directors fulfill their legal duties, from preparing and maintaining accurate financial records to advising on conflict-of-interest situations. With Scribe’s expertise, directors can confidently uphold their responsibilities, protect the company’s interests, and foster a culture of good governance—minimizing risk and enhancing organizational success.
Next Steps for Directors
To help directors ensure they are fulfilling their legal duties and supporting effective governance, here are some actionable steps:
· Conduct an Internal Review – Assess your company’s current compliance with Ghanaian corporate law. Identify any areas where improvement is needed, particularly in record-keeping, conflict-of-interest policies, and governance structures.
· Seek Professional Guidance – For tailored advice and support in aligning with Ghanaian law, consider scheduling a consultation with Scribe Advisory & Consulting. Our experts can help you assess your governance structure, provide compliance insights, and develop strategies for risk mitigation.
By taking these steps, directors can confidently uphold their responsibilities, protect their company’s interests, and build a foundation for sustainable growth and success. Contact Scribe Advisory & Consulting to learn more about how we can support your governance needs.