When you become a company director, you sign up to take responsibility – with the rest of the Board – for the management of the company’s business. This means ensuring that the business complies with its statutory obligations, as well as taking part in operational and strategic decision making. When you become a director there are certain key responsibilities, defined by law, that you need to be aware of.
Directors’ legal responsibilities
- Acting within your powers and only exercising these for the purpose for which they were given.
- Promoting the “success” of the company, bearing in mind factors such as employee interests, relationships with any suppliers and the company’s reputation.
- Exercising independent judgment i.e. you must be making your own decisions.
- The expectation to act with reasonable care, skill and diligence. This expectation doesn’t require you to have knowledge or insight outside the scope of your experience, just the general knowledge, skill and experience of someone in your role and to the degree that you actually possess.
- Ensuring that you avoid a situation that might be a conflict of interest. The conflict here is with the interests of the company and could be something like having multiple directorships or being an advisor to a competitor of the company. In some situations, a conflict will not cause an issue – for example, where it has been pre-authorised. Where there is a potential conflict, directors have a responsibility to seek the approval of the rest of the Board of Directors and to check the situation against the company’s Articles of Association.
- Avoid accepting benefits from third parties. If you receive a benefit from a third party as a result of something you do or don’t do as a director then this could cause a problem.
- Declaring relevant interests. If there is a transaction or arrangement with the company that you have a direct interest in then, as a director, you have a responsibility to declare this. This should be done before a transaction is entered into or, if the transaction has already taken place, as soon as is reasonably practical after that.
Directors who breach their legal responsibilities
If you are in breach of these duties then you could find yourself facing an injunction, damages or compensation – in some cases even a criminal fine. Some relief can be granted either by the company’s shareholders or the courts in certain situations. Director’s insurance will also ensure that you have a financial safety net should the worst occur.
What about other responsibilities?
Outside of legal duties, directors also have a number of other responsibilities including:
- The company’s confidential information can only be used or disclosed for the benefit of the company.
- Health and safety. Ensuring that the business is compliant in health and safety is a responsibility that falls to the directors.
- Other obligations. Directors are also responsible for ensuring the company’s compliance with other obligations, such as environmental obligations and anti-corruption obligations.
- Directors have a responsibility to seek advice as soon as possible where the business is in financial difficulty. This is especially important in order for directors to avoid potential personal liability under insolvency law.
Becoming a director is a significant step and one that you need to prepare for – our courses provide all the grounding you need in how to do the job well. Take a look at our
Role and Responsibilities of a Director course today or give us a call on 01509 889632 to find out more.