Information on Directors’ duties and guidance for company directors.
Becoming a director carries with it potentially onerous duties. Make sure you know what those duties are. At AVASK, can provide professional advice to help you fulfil your duties and obligations.
The position of director brings both rewards and responsibilities upon an individual.
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 will feel a sense of achievement.
However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.
You can undertake business in the UK as either:
- an unincorporated entity, i.e. a sole trader or a partnership or
- an incorporated body.
An incorporated business is normally referred to as a company. Although there are limited liability partnerships and unlimited companies the vast majority of companies are limited by shares. This means the liability of shareholders is limited to the value of their share capital (including any unpaid).
A limited company can be a private or public company. A public company must include 'public' or 'plc' in its name and can offer shares to the public.
The responsibilities and penalties for non compliance of duties are more onerous if you are a director of a public company.
When you are appointed a director of a company you become an officer with extensive legal responsibilities. For a director of an incorporated body, the Companies Act 2006 sets out a statement of your general duties. This statement codifies the existing ‘common law’ rules and equitable principles relating to the obligations of company directors that have developed over time. Common law had focused on the interests of shareholders. The Companies Act 2006 highlights the connection between what constitutes the good of your company and a consideration of its wider corporate social responsibilities.
The legislation requires that directors act in the interests of their company and not in the interests of any other parties (including shareholders). Even sole director/shareholder companies must consider the implications by not putting their own interests above those of the company.
The aim of the codification of directors’ duties in the Companies Act 2006 is to make the law more consistent and accessible.
The Act outlines seven statutory directors' duties, which also need to be considered for shadow directors. These are detailed below.
Enforcement and penalties
The Companies Act states that they will be enforced in the same way as the Common Law, although under Company Law. As a result there are no penalties in the Companies Act 2006 for failing to undertake the above duties correctly.
Enforcement is via an action against the director for breach of duty. Currently such an action can only be brought by:
- the company itself (i.e. the Board or the members in a general meeting) deciding to commence proceedings; or
- a liquidator when the company is in liquidation.
- an individual shareholder can take action against a director for breach of duty. This is known as a derivative action and can be taken for any act of omission (involving negligence), default or breach of duty or trust.
Where the company is controlled by the directors these actions are unlikely.
How AVASK can help:
You will now be aware that the position of director must not be accepted lightly.
- The law is designed to penalise those who act irresponsibly or incompetently.
- A director who acts honestly and conscientiously should have nothing to fear.
We can provide the professional advice you need to ensure you are in the latter category.