Company directors have a responsibility to their company and to manage it in a fit and proper manner. There job is to promote the company for the benefit of the shareholders. They also have responsibilities to the company’s creditors and employees.
Directors often have wide powers and freedom when it comes to managing a company, however there are laws that stop directors abusing their powers. These laws can often come with serious consequences if broken.
Appointments – Directors
Every limited company must have a company director. At least one of them needs to be an actual person.
- The first director(s) are appointed by the shareholders who form the company
- Future appointments must follow rules set out in the articles of association
- Executive and non-executive directors can be appointed
- Individuals who are not appointed could still be classes as a shadow or ‘de facto’ director
- Not everyone can be a director, some are debarred from becoming directors e.g. disqualified or bankrupt
Details of directors must be reported to Companies House within 14 days:
- Who was appointed and when
- Who has resigned and when
- Whose details have changed and when
Exercising directors’ powers
Directors must make sure that there are no limitations that would stop them from doing certain things within a company.
- You must act within the powers granted in the articles of association
- You must exercise reasonable care, skill and diligence
- You must exercise independent judgment
As a director, you must act in a way which you think is most likely to promote the success of the company for the benefit of its shareholders. When acting as a director, you must consider a number of statutory factors, including the consequence of decisions and the interests of shareholders and employees.
- You must give equal rights and consideration to all shareholders
- You must not use your position as a director to benefit yourself at the company’s expense
- Legally you must declare any actual or potential conflict of interest
- Any deals between the company and you must be approved by the shareholders
Responsibilities under company law
Directors are responsible for ensuring that the company complies with company law, if not this can affect you personally.
- Statutory returns must be filed with Companies House on time
- File accounts with Companies House
- You must provide company details on business stationery and elsewhere
- Treat all creditors fairly and not to prefer one over another
- Not to benefit yourself over creditors of the company
Exercise your responsibilities carefully as a director, penalties for failure to do so can be severe.
- You could be held personally liable for losses of the company
- Directors can be liable if you act in breach of your responsibilities, collectively and jointly.
- You could be disqualified from acting as a director
- Worst case scenario, you could receive a criminal conviction
- Regularly monitor the finances of the company
- Minimise losses if the company is in, or faces, financial difficulties
- Maintain minutes of directors’ meetings
- Keep in mind your responsibilities and duties as a director
- Avoid giving personal guarantees for the company’s debts, where possible
- Consider taking out directors’ and officers’ liability insurance to protect yourself