15 Jun — 21

What are my duties as a company director?

It's an exciting time when you become a company director. Congratulations! You may feel like you are now in charge of your own destiny. However, "with great power comes great responsibility" and you should be aware of the duties and responsibilities that come along with the title.

There are seven statutory (required, permitted, or enacted by law) duties that each director owes to the company. 

1) You must act within the company's constitution 

2) You must promote the success of the company 

3) You must exercise independent judgment 

4) You must exercise reasonable care, skill and diligence 

5) You must avoid or manage conflicts of interest

6) You must not accept benefits from third parties because you are a director or because you agree to do or not do something as a director. 

7) You must declare any interests you have in a transaction or arrangement with the company. 

As a company director, you have wide powers to help you promote the company but you face serious consequences if you abuse those powers or use them irresponsibly. 

You must act within the powers granted in the articles of association

Always check if there are limits on directors' activities as you must act within the powers granted in the articles of association. The articles define the rules governing how the company is to be run, including what the directors' powers and responsibilities are. They set out how decisions are to be taken e.g. the procedures for calling a board meeting and how directors are needed to vote on a proposal. 

You must promote the success of the company 

You must act in a way that would promote the success of the company for the benefit of its members (shareholders). Success generally means a long-term increase in value, however fundamentally it is up to the directors to decide whether a particular course of action is appropriate. 

You must exercise independent judgment 

Directors are meant to develop their own informed view on the company's activities. You must make your own decisions in accordance with the company's constitution or in accordance with any agreements that the company has entered into. Directors should not be delegates that simply implement the commands of others, nor should they avoid their responsibility to make independent decisions. 

You must exercise reasonable care, skill and diligence

The test of an acceptable level of care is what a reasonable person would do in looking after their own affairs, but taking into account the knowledge, skill and experience that you actually have. 

You are generally not liable for the actions of your fellow directors if you knew nothing about them and took no part in them but you do have a duty to make sure you are informed about the company's affairs. 

You may well be liable if you turn a blind eye to misconduct by your co-directors. 

You must avoid or manage conflicts of interest 

You must avoid situations in which you have or could have an interest that conflicts with the interests of the company. Unfortunately there is no convenient set of rules but the following are examples were a conflict situation may arise : 

Multiple directorships for example if you are on the board of a major shareholder, the pension scheme trustee, a competitor or a customer. 

Advisory positions for example you have another role as an accountant or consultant to the company  

Other profits for example you make personal use of the company information or opportunities that the company declined

Connected persons for example if any of these situations applied to any person connected to you e.g. spouse, parent or child

You must not accept benefits from third parties 

Gifts or benefits from third parties are a potential threat to a director's objectivity. You must not accept benefits from third parties arising from your position as director. 

You must declare interests in transactions 

If you are in any way interested in a transaction or arrangement with the company you must declare it to the other directors if there is a risk that a conflict of interest may arise. This duty is not infringed if your interest cannot reasonably be regarded as giving rise to a conflict, or you were unaware of the interest or the other directors are already aware. 

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