Business Ethics and Corporate Governance, Second Edition

THE DIRECTORS’ LIABILITY TO THE COMPANY

Directors are also liable to the company under the following heads: (i) ultra vires acts; (ii) negligence; (iii) breach of trust; and (iv) misfeasance.

• Ultra vires acts: Directors are personally liable to the company in matters of illegal acts. For instance, if directors pay dividends out of capital or when they dissipate the funds of the company in ultra vires transactons, they are jointly and severally liable.
• Negligence: A director may be held liable for negligence in the exercise of his duties. Though there is no statutory definition of negligence, if a director has not shown due care and diligence, then he is considered negligent. However, it is essential in an action for negligence the company has ...