directors' responsibilities

Directors’ Responsibilities: The Directors’ Directory Part 1

Directors’ responsibilities apply to any company director.

Over the next three posts we will break down the role of the company director – starting with the responsibilities.

Directors’ responsibilities: Statutory Duties

Directors need to be aware that they are personally subject to statutory duties in their capacity as directors of a company. In addition, the company – as a separate legal entity – is subject to statutory controls. The directors are responsible for ensuring that the company complies with such statutory controls.

The Companies Act 2006 codified certain common law and equitable duties of directors for the first time.

The act sets out the general duties of directors, which are:

The company secretary as chief administrative officer will be responsible for the performance of many of the administrative duties imposed under the Companies Act 2006.

A private company is not required to appoint a company secretary and where no company secretary is appointed the duties and responsibilities of the company secretary will fall on the directors.

Directors may be liable to penalties if the company fails to carry out its statutory duties. However, they may have a defence if they had reasonable grounds to believe that a competent person had been given the duty to see that the statutory provisions were complied with.

One of the main statutory responsibilities falling on directors is the preparation of the accounts and the report of the directors.

It is the responsibility of the directors to ensure that the company maintains full and accurate accounting records. This includes the preparation of a balance sheet and a profit and loss account for each financial period of the company, and the presentation of these to shareholders and, subject to various exemptions, the filing of the accounts and report of the directors with the Registrar of Companies.

As a general rule, it is up to the director:

  • To act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
  • To promote the success of the company for the benefit of its members
  • To exercise independent judgement
  • To exercise reasonable care, skill and diligence
  • To avoid conflicts of interest
  • Not to accept benefits from third parties
  • To declare an interest in a proposed transaction or arrangement
  • The director has been guilty of three or more defaults in complying with companies legislation regarding the filing of documents with the Registrar of Companies during the preceding five years
  • He or she is, or was, a director of a company that has at any time become insolvent and that his/her conduct as a director of that company makes him/her unfit to be concerned in the management of a company
  • The director is found to be guilty of wrongful or fraudulent trading as defined in the Insolvency Act 1986

Directors’ responsibilities – main misconceptions:

A common misconception is that the status of managing director imposes additional legal obligations and duties on a director. In strict company law terms this is incorrect – the duties apply equally to all directors. All directors are subject to identical fiduciary and statutory duties set down by the Companies Act 2006. This includes non-executive directors.

There are several misconceptions including:

Point 1 –No law requires a company to appoint a managing director

Point 2 – A director can act in a conflict situation

Point 3 – Directors need to be aware that the public are entitled to make assumptions

Point 4 – Liability of directors

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