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Directors Responsibilities: do you know what they are?

10 November 2019

Same-Day Company FormationThe first thing to understand when looking at Directors Responsibilities is that these do not only apply to those that are officially appointed at Companies House. Where it can be proved that an individual exercises significant influence over the company and its decision making, that person may be treated as a director and they would be expected to comply with the requirements of the Act.

Many directors in privately owned companies are appointed and many of them do not have a basic understanding of what this could involve legally and what obligations they are expected to fulfil.

Directors Responsibilities – the Seven main duties as defined by The Companies Act 2006

  1.  To act within powers.   This means that the director should comply with the company’s memorandum and articles of association together with any other constitutional document the company may have.
  2. To act in a way the director considers (in good faith) is most likely to promote the success of the company for the benefit of its members as a whole (or, if relevant, other purposes specified in the constitution).  This means that the director should ensure they have considered the implications of any decision in the long term; should always consider the interest of the employees; maintain the reputation of the company; maintain business relationships with its suppliers, customers and others.
  3. To exercise independent judgement.   This does not mean that the director can not obtain advice from third parties but it does mean that the use their judgement to consider whether the advice should be followed or not.
  4. To exercise reasonable care, skill and diligence.   This means that a director has to apply care and ensure that they are well informed about the company affairs.  Where a director has a particular skill or qualification the definition of reasonable will be extended, for example a qualified accountant.
  5. To avoid conflicts (or possible conflicts) between the interests of the director and those of the company.
  6. Not to accept benefits from third parties by reason of being a director or doing anything as director.   This ensures that the director is subject to bribery and is able to maintain their judgement and independence.  However, the company is likely to authorise the acceptance of items such as corporate hospitality.
  7. To declare any interest in a proposed transaction or arrangement.    This is to ensure independence and that the best interests of the members are always being considered.

As well as these, a director should always act in the best interest of the creditors especially in times of threatened insolvency and maintain the confidentiality of the company’s affairs.

It is therefore important before you accept appointment as a director that you understand what your Directors Responsibilities are.

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