DIRECTORS’ DUTIES UNDER NIGERIAN COMPANY LAW

Many directors assume their role is primarily strategic, attending meetings, approving decisions, and guiding growth.

But under Nigerian company law, directorship is more than status. It carries serious legal responsibility.

Whether you are a founder-director, executive director, or non-executive director, understanding your duties is essential to avoid personal liability and reputational damage.

Here is what every director must know.

The Legal Framework

Directors’ duties in Nigeria are primarily governed by the Companies and Allied Matters Act (CAMA 2020).

CAMA codifies fiduciary duties and standards of care expected of directors. These duties are owed to the company itself, not to individual shareholders, employees, or external stakeholders.

This distinction matters.

A director who prioritizes personal interest or a specific shareholder over the company’s interest may breach the law.

Duty to Act in Good Faith and in the Best Interest of the Company

A director must:

• Act honestly
• Exercise powers for proper purposes
• Promote the success of the company

This means decisions must be made in the company’s overall interest, not for personal gain.

For example:

• Awarding contracts to a company owned by a relative without disclosure
• Using company opportunities for personal benefit
• Diverting corporate business elsewhere

These actions may constitute a breach of fiduciary duty.

Duty to Exercise Reasonable Care, Skill, and Diligence

Directors are expected to act with the level of care that a reasonably prudent person would exercise in similar circumstances.

This includes:

• Attending board meetings
• Reviewing financial statements
• Asking critical questions
• Ensuring regulatory compliance

A director cannot defend negligence by saying, “I was not involved in daily operations.”

Passive directorship is risky.

Duty to Avoid Conflict of Interest

Where a director has a personal interest in a transaction involving the company, the law requires full disclosure.

Failure to disclose a conflict may result in:

• The transaction being voidable
• Personal liability
• Repayment of profits

Transparency is not optional. It is mandatory.

Duty Not to Make Secret Profits

Directors must not profit secretly from their position.

If a director benefits financially from an opportunity that properly belongs to the company, the company may demand repayment.

Even if the company did not suffer a loss, the director may still be liable to account for the profit made.

The law focuses on integrity, not just financial damage.

Duty to Comply With Statutory and Regulatory Requirements

Directors must ensure the company complies with:

• Filing obligations
• Tax requirements
• Sector regulations
• Corporate governance standards

Failure to ensure compliance may attract penalties not just against the company, but in certain circumstances, against directors personally.

Regulatory agencies and tax authorities increasingly hold directors accountable.

Duty in Insolvency Situations

When a company approaches insolvency, directors’ responsibilities shift significantly.

At that stage, directors must consider the interests of creditors, not just shareholders.

Wrongful or reckless trading during insolvency may expose directors to personal liability.

Continuing to incur debts when there is no reasonable prospect of repayment can lead to serious consequences.

Consequences of Breach

Breach of directors’ duties may result in:

• Personal liability for losses
• Disqualification from serving as a director
• Civil litigation
• Criminal sanctions in serious cases

Directorship is not symbolic. It is legally binding.

Practical Governance Advice for Directors

To reduce exposure:

• Insist on proper board documentation
• Record dissent in minutes where necessary
• Request professional advice when uncertain
• Ensure regular compliance reviews
• Avoid informal decision-making outside formal structures

Good governance is protective governance.

Why This Matters

In Nigeria’s evolving corporate landscape, regulatory scrutiny is increasing. Investors, financial institutions, and regulators expect stronger governance standards.

Directors who understand their duties are better positioned to:

• Protect their personal reputation
• Safeguard company assets
• Build investor confidence
• Prevent avoidable disputes

A directorship is both an opportunity and a responsibility.

At Sols Legal, we advise boards, founders, and corporate leaders on governance, compliance, and risk management under Nigerian law.

Our services include:

• Board advisory and governance structuring
• Directors’ compliance audits
• Corporate risk assessment
• Regulatory advisory

If you serve on a board or are considering accepting a directorship, ensure you fully understand your legal exposure.