Duties of a Company Director

Commercial Law
Written By Vignes Rajagopal
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If you have registered a limited company or are planning to set up a new limited company, you are obligated to register that company with Companies House, the United Kingdom’s registrar of companies.  By doing this, you will become a company director and as such, take on legal obligations to both the limited company, which is a legal entity in its own right and Companies House.
 
Here, Dragon Argent take a look at the legally responsibilities a director has in running their business and making sure information is sent to company’s house on time.  This information includes: 

  • The confirmation statement

  • The annual accounts

  • Any change in your company’s officers or their personal details

  • A change to your company’s registered office

  • The allotment of shares

  • Registration of charges

  • Any change in the details of your company’s people with significant control

You can hire other people to manage some of these things day-to-day (for example, an accountant or company secretary) but you’re still legally responsible for your company’s records, accounts and performance.
 
General Duties
 
The Companies Act of 2006 mandated that company directors must perform a set of seven specific duties as part of their obligation to the limited company they are a director of.  Before we map out these seven duties, it is worth noting that these duties still apply even if you feel the below statements are true of you: 

  • You are not active in your role as a director

  • Someone else runs the business or makes decisions on your behalf

  • You act as a director but have not been formally appointed

  • You control a board of directors without being on it

Duty One: Company’s Constitution
 
You must follow the company’s constitution and its articles of association. These are written rules about running the company, agreed by the members, directors and the company secretary.
 
The constitution sets out what powers you’re granted as a director, and the purpose of those powers.
 
Duty Two: Promote the Success of the Company
 
You must act in the company’s best interests to promote its success. You must consider the consequences of decisions, including the long-term impact and the interests of its employees. 
 
You will need to support business relationships with suppliers, customers and others and consider the impact of its operations on the community and environment.  You must consider the company’s reputation for high standards of business conduct and will need to act fairly to all members of the company.
 
Finally, if the company becomes insolvent, your responsibilities as director will apply towards the creditors, instead of the company. A creditor is anyone owed money by the company.
 
Duty Three: Independent Judgement
 
You must not allow other people to control your powers as a director. You can accept advice, but you must use your own independent judgement to make final decisions.
 
Duty Four: Exercise Reasonable Care, Skill and Diligence
 
You must perform to the best of your ability. The more qualified or experienced you are, the greater the standard expected of you.  You must use any relevant knowledge, skill or experience you have (for example, if you’re a qualified accountant) in the best interests of the company. 
 
Duty Five: Avoid Conflicts of Interest
 
You must avoid situations where your loyalties might be divided. You should consider the positions and interests of your family, to avoid possible conflicts.  You should tell other directors and members about any possible conflict of interest, and follow any process set out in the company’s articles of association.
 
This duty continues to apply if you’re no longer a director. You must not take advantage of any property, information or opportunity you became aware of as a director.
 
Duty Six: Third Party Benefits
 
You must not accept benefits from a third party that are offered to you because you’re a director. This could cause a conflict of interest.  However, the company may allow you to accept benefits like reasonable corporate hospitality if it’s clear there’s no conflict of interest.
 
Duty Seven: Interests in a Transaction
 
You must tell the other directors and members if you might personally benefit from a transaction the company makes. For example, if the company plans to enter a contract with a business owned by a member of your family.
 
If you fail to meet your obligations as a Director, as set out in the Companies Act of 2006, it is usually the company itself which acts.  In some instances, one or more shareholders can make a claim against a director if they have suffered personal financial loss or damage due to a breach of obligations.  This could result in litigation or the loss of shareholder rights.
 
Dragon Argent offer an outsourced company secretarial service to clients who require support in the compliant administration of their businesses.  If you would like to discuss this or would like an overview of the service we offer, please get in touch, otherwise I hope this summary of duties was a useful reminder for company directors!   


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