There are thousands of companies registered with the Malta Financial Services Centre. Under Section 137 of the Companies Act, each requires at least one director to manage its business.

These directors may exercise several powers to which the company entitles them, including powers specified in Section 136 of the Act. However, directors should be duly responsible for their actions. This is because, under Section 137(4), anything done by a director which is beyond his powers will still be binding on the company, unless that act exceeds the power, granted to a director under the Companies Act. Moreover, any limitation on the powers of a director of the company shall not be relied on as against third parties.

I think that most of the companies' directors are unaware of the consequential responsibilities that they carry under the new provisions of the Act. Most of them presume that the business world remained as it was before the Companies Act was enacted and that the mild provisions of the Commercial Partnerships Ordinance still prevail.

These directors are still under the impression that they enjoy limited liability in the case that the company becomes bankrupt. Yet, reality proves otherwise. Under the Companies Act, directors have a distinct and legal responsibility from the company they represent. Unfortunately, it is only when directors are charged with an offence under the Companies Act that they realise what their responsibilities are.

This is a sorry situation when considering that directors now play an important role under the new Act. Directors need to come to terms with the drastic changes made to company legislation in 1995. They need to understand that while shareholders enjoy the protection of limited liability, the directors are individually and collectively responsible for their actions if it is proved that the company suffered as a consequence of their actions.

Entrepreneurs may be setting up companies in which they are both directors and shareholders, assuming that in case of bankruptcy they are relieved of settling the outstanding debts of the company. However, even though the directors and shareholders are the same persons, the directors are deemed to be separate persons under the law and are therefore responsible for their actions.

This removes any loopholes for persons setting up a company with the intention of getting it bankrupt to avoid paying its debts due to the concept of limited liability.

Responsibilities of directors are even more pronounced in the case of public companies. These companies are obviously far greater and require more public accountability.

In this day and age, we are speaking of corporate governance. It encompasses the culture of accountability by directors in public companies towards shareholders that are, ultimately, the owners of such companies. A code of good practice, which establishes standards of behaviour by directors in public companies, will be beneficial in acquiring greater transparency and in reducing corruption.

One hot issue regarding directors' accountability concerns their remuneration. Directors serving on the boards of public companies are often in a position to set their own remuneration. Therefore, directors may keep on raising their remuneration on the argument that their responsibilities are increasing, even though this may not be true in reality.

One way of getting around this fault is to permit shareholders in the annual general meeting to approve, or otherwise, any increases in directors' remuneration. Shareholders may be reluctant to approve such increases, especially when they realise that these will decrease profits and, consequently, their probability of getting a dividend.

Shareholders still have to realise that they are entitled to various rights, such as attending the annual general meeting and voting on various issues presented to them including the right to choose who should represent them on the Board of Directors. Yet, some shareholders do not even exercise this right, thus impairing their possibilities of having a voice in the company's direction.

Public companies have recently evolved in such a way that their directors may even become responsible to other parties such as employees, creditors and consumers. This argument is being debated in various countries and, in our country, we have yet to see whether the concept of corporate governance will develop towards this argument.

At present, employees' rights are safeguarded by industrial legislation and trade unions' actions, creditors' interests are protected by bankruptcy and insolvency laws while consumers' interests are defended by general consumer protection legislation. Again, we may have to see whether this will be sufficient in the near future.

Another point worth mentioning relates to dividends. Shareholders usually invest in a public company with the expectation that they will earn above-average dividends in future years.

Yet, companies which make losses, or a relatively small profit, often do not declare a dividend, thus depriving shareholders from getting a return. In effect, this means that shareholders would have done even better if they invested in a low-interest-earning bank account!

Shareholders should have a right to demand why they are not entitled to any dividend, and to question whether this may be a result of inefficiency or unnecessary spending by the company which subsequently decreased profits.

Corporate governance needs to take the hold in our local situation in order to ensure more transparency in the management of public companies. It is very important to have the directors' effectiveness assessed and their actions analysed so as to improve their effectiveness and hence increase shareholder value.