Cyprus Companies Law provides that every private company must have at least one director and every public company must have at least two directors (s.170). Every company shall have a secretary and a sole director shall not also be secretary, except in the case of a single-member private limited liability company where the sole director may also be the secretary (s.171). 

 

The Law also provides in favour of a person dealing with a company in good faith that the power of the board of directors to bind the company, or to authorise others to do so, shall be deemed to be free of any limitation under the company’s constitution i.e. (memorandum and articles of association).

 

The Law also provides that acts of a director or manager are valid notwithstanding any defect that may afterwards be discovered in his appointment or qualification (s.174).

 

Directors have powers to take majority business decisions on behalf of the companies. Consequently, various duties are imposed on them, to ensure that the companies’ interests are protected.

 

Directors' duties including duty to act in good faith to the best interest of the company; duty to avoid conflicts of interest; duty not to profit from their offices, and duty of care and skill are enshrined in the common law rules and equitable principles and also in statutes such as the Company Law of Cyprus Cap 113.

 

Duties of Directors:

 

(a) Fiduciary Duty

(b) Duty to exercise skill & care

(c) Statutory duties

 

The duties owed by the Directors are owed to the company and not to individual shareholders.  Summarized below are the seven general duties:

 

It should be hereby noted that there is no difference in principle between «executive» and «non-executive directors».

 

 

 

The Law imposes a duty to act in the way a director considers, in good faith, would be most likely to promote the success of the company (fiduciary duty). Although this duty is still owned to the member as a whole, when exercising this duty the director is required to have regards to various non-exhaustive list of factors including the long term consequence of the decisions as well as the interests of the employees; the relationships with suppliers, customers; and the impact of the decision on community and environment; the desirability of maintaining a reputation for high standards of business conduct; and the need to act fairly as between members of the Company.  The overriding duty is to act in the best interests of the company as a whole, and that is normally taken to mean the interest of shareholders both present and future.  In practice, this duty may be described as follows:

 

 

The modern view of the duty of care was set out in Re D’ Jan of London Limited [1993] B.C.C. 646. The conduct of «a reasonably diligent person means a person having both (a) the general knowledge, skill and experience that may reasonably be expected of persons carrying out the same functions as carried out by that director in relation to the company, and (b) the general knowledge, skill and experience that that director has».

 

The absence of clear authority makes it hard to define what the above definition entails.  The first part of the definition entails an «objective» or «benchmark» test of what «the reasonable man» might expect of a director in the particular circumstances. The second part of the test requires that if that particular director has a particular skill or level of experience, then he is required to exercise that particular skill in addition to the benchmark test.

 

 

 

Directors have various statutory duties imposed by the Companies Law and other legislation, such as the Income Tax, VAT, Customs & Excise legislation, health and safety and environmental legislation. Special reference must be made to statutory liabilities imposed under the Companies Law to directors in relation to the company, its shareholders or to the public, such as:

 

(a) Register of Directors and secretary, (s.192)

(b) Register of Directors interests, (s.187)

(c) Disclosure of payment for loss of office made in connection with transfer of shares in a company, (s.185)

(d) Disclosure of interests in contracts, (s.191)

(e) Loans to directors, (s.188 and 189)

(f) Prospectus offers (see in detail below), (s.31 to s.39)

(g) Pre-emption rights /Transfer of shares (s.71 to 82)

(h) Fraudulent trading (s.311),

(i) Profit and loss account and balance sheet (s.142)

(j) Falsification of books or destroying company documents, 308

(k) Duties antecedent to or in course of winding up (s.207 tos. 213)

(l) Directors report and annual return (s.151)

 

Breach of the above duties under Companies Law is a criminal offence with penalties ranging from the payment of a fine to 2 years imprisonment. In addition the directors are liable to personally compensate the company in respect of any loss which was a result of the breach of their duties.

 

Directors may be liable for prosecution by the Inland Revenue or Customs & Excise in respect of tax related offences.

 

 

Under section 197 of Cap.113, granting a general exemption in advance to directors in respect of liability to the company is impossible. Any provision in a contract or in the articles of association of the company which attempts to exempt a director or indemnify a director who has been in breach of his duty of care and skill is void by virtue of.