Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you should feel a sense of achievement. However the office of director should not be accepted lightly as it carries with it a number of duties. Our solicitors can advise you in fulfilling your duties.
Even a director of a sole director/shareholder company must consider the implications of these duties.
The Companies Act 2006 sets out seven statutory directors' duties, which also need to be considered for shadow directors.
Duty to act within powers
As a director, you must act only in accordance with the company’s constitution, and must only exercise your powers for the purposes for which they were conferred.
Duty to promote the success of the company
You must act in such a way that you consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. You must also consider a number of other factors, including:
- the likely long-term consequences of any decision
- the interests of employees
- fostering the company's business relationships with suppliers, customers and others
- the impact of operations on the community and environment
- maintaining a reputation for high standards of business conduct
- the need to act fairly as between members of the company.
Duty to exercise independent judgment
You have an obligation to exercise independent judgment. This duty is not infringed by acting in accordance with an agreement entered into by the company which restricts the future exercise of discretion by its directors, or by acting in a way which is authorised by the company’s constitution.
Duty to exercise reasonable care, skill and diligence
You must exercise reasonable care, skill and diligence using your own general knowledge, skill and experience, together with the care, skill and diligence which may reasonably be expected of a person who is carrying out the functions of a director. So a director with significant experience must exercise the appropriate level of diligence in executing their duties, in line with their higher level of expertise.
Duty to avoid conflicts of interest
As a director, you must avoid a situation in which you have, or may have, a direct or indirect interest which conflicts, or could conflict, with the interests of the company.
This duty applies in particular to a transaction entered into between you and a third party, in relation to the exploitation of any property, information or opportunity. It does not apply to a conflict of interest which arises in relation to a transaction or arrangement with the company itself.
Duty not to accept benefits from third parties
This duty states that you must not accept any benefit from a third party which has been conferred because of the fact that you are a director, or as a consequence of taking, or not taking, a particular action as a director. This duty applies unless the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
Duty to declare interest in a proposed transaction or arrangement
Any director who has either a direct or an indirect interest in a proposed transaction or arrangement with the company must declare the ‘nature and extent’ of that interest to the other directors, before the company enters into the transaction or arrangement. A further declaration is required if this information later proves to be, or becomes either incomplete or inaccurate.
The requirement to make a disclosure also applies where directors 'ought reasonably to be aware' of any such conflicting interest.
However, the requirement does not apply where the interest cannot reasonably be regarded as likely to give rise to a conflict of interest, or where other directors are already aware (or 'ought reasonably to be aware') of the interest.
Enforcement and penalties
The Companies Act provides for civil consequences for breach of general duties of directors. Any director who ‘authorises or permits, participates in, or fails to take all reasonable steps to prevent’ a breach will also commit a statutory offence.