Duties of a Company Director
As a director, it is your role and duty to assume responsibility for the management and operations of the business. As an individual director, your role is to participate in board meetings and make strategic decisions for the company. As well as becoming exposed to disqualification proceedings by the Insolvency Service, directors who fail to comply with regulatory and statutory requirements may face consequences which will be damaging to both personal and professional reputation.
Under the Companies Act 2006, statutory duties of the director require:
- The duty to act within powers (Section 171 CA 2006)
It is important that directors act within the company’s constitution and powers. This means Directors should refrain from acting without the company’s authorisation. A detailed breakdown of directors powers and restrictions is usually set out within the Company memorandum and articles of association.
- The duty to promote the success of the company (s172 CA 2006)
Directors are expected to prioritise the interest of the company, company shareholders and other stakeholders. In summary, the Directors duty is to act in good faith in the best interest for the members of the company inclusive of the interests of employees, suppliers, customers and creditors. Additionally, the impact on the environment, company reputation and long-term company success must be considered.
New reporting requirements will require companies with more than 250 employees will have to explain how they have fulfilled this duty in their annual report from the beginning of 2019.
- The duty to exercise independent judgement (s173 CA 2006)
The third duty of a Director refers to the requirement for directors to make decisions and carry out responsibilities based solely on individual views. Directors must not act on commands delegated from other parties; this will call for Directors to become familiar with activities undertaken by the Company to form an impartial, informed opinion.
- The duty to exercise reasonable care, skill and diligence (s174 CA 2006)
For the Director to be able to meet the expectation of legislation which compels Directors to exercise reasonable care, skill and diligence, there is a requirement that
- Directors must have the knowledge, skill and expertise expected of anyone carrying out the functions of a Director
- Directors must perform according to the skill, knowledge and experience that they have. The skills exhibited will vary dependent on each director.
- The duty to avoid conflict of interest (s175 CA 2005)
Directors are under the obligation to ensure that the company’s interests do not clash with the directors own personal interests either indirectly or directly . In certain circumstances, a conflict may be permitted but only with the prior consent of the company. An example of a conflict of interest may be where a director has an interest in a commercial opportunity that could be exploited by the company but the director may also be a director and/or shareholder of the organisation which is proposing to supply services to the company.
- The duty to declare interest in proposed transactions or arrangement (s177 CA 2006)
In the event that a company has proposed a transaction or arrangement, Directors must disclose any interest held in such transactions. Full disclosure is needed to ensure that other directors are completely aware of the nature and extent of the interest held. In line with legislation, a declaration of interest is not required where:
- the director wasn’t aware of their interest and it’s reasonable to be unaware;
- the director wasn’t aware of the arrangement with the company and it’s reasonable to be unaware;
- there is a sole director (so they would not be required to meet alone to declare an interest to themselves and formally record this). It would be prudent as a sole director to gain approval of the members before entering into a transaction in which the sole director has an interest. It is worth remembering that any contract entered into by a limited company with its only member must be recorded in writing, if the sole member is also a director or shadow director of the company.
- the interest cannot reasonably be regarded as giving rise to a conflict;
- the rest of the board is already aware of the director’s interest (or ought to be aware of it); and/or
- the interest arises from the director’s service contract – a contract that has either already been considered by the board or a board committee or is due to go before them.
- The duty to refuse benefits from third parties
Legislation declares that directors are prohibited from accepting any benefit from a third party by reason of:
- The persons being a director
- Any action or decision taken as director
Exceptions to this duty may allow benefits to be received by a director if the benefit cannot be regarded as a conflict of interest.
Speak to our experienced solicitors today
If you are worried about role and duty as a director, contact one of our team now for practical and informed legal advice.
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Who we can help
At Lincoln & Rowe we can assist with matters of director duties or a company with a director failing to comply with regulatory and statutory requirements.
Where can you find us?
Lincoln & Rowe Solicitors are based in the heart of London and just a few minutes’ walk from the Royal Courts of Justice. Our full address is 81 Chancery Lane, London WC2A 1DD.