You might have recently taken on the role of a company director. Are you aware of the legal requirements that a director should follow?
Next, to the director appointment, he/she will be expected to fulfill certain duties to the shareholders, employees, and the company itself. The company director is finally held responsible (blamed) if deadlines are not met, or if a terrible fault is made. This article gives a brief understanding of the key responsibilities of a limited company director and who governs it, in particular.
Who governs the director’s responsibilities
The Companies Act 2006 is a fundamental part of the regulation that controls/governs a company law in the UK. These statutory regulations are applicable to all entities irrespective of their sizes – including the large corporation. Listed below are the general duties of a director as described in The Companies Act 2006:
- Act within the set power
- Promote the success of the company
- Exercise independent judgment
- Exercise reasonable skill, care, and diligence
- Specifically, avoid conflicts of interest
- At any rate, do not accept the benefits of interest from third parties
- Finally, declare an interest in proposed agreement or transaction
Statutory requirements of a director:
1. Act within the company’s constitution:
The article of Association is the first and foremost of a company’s structure. It explains in detail the key set of rules for both the company and its directors. A director should act within his power subject to the company’s constitution.
At the time of company formation, each company will tailor their own articles with the help of a legal guide. A company director should get used to the articles of association. Staying aware of the articles help him to take the right decision in almost all scenarios. Because exceeding the set power might cause serious consequences and might end up getting penalized.
2. Promote the company’s success:
The next well-known director’s duty is to promote the company’s success. It is an obvious task for a director and it involves a lot of dedication. The following duties are listed in relation to promoting companies success:
- A director must act in a way that they think, in good faith and integrity so that they can promote the company’s success
- While taking decisions, the directors must keep in mind the likely consequences of all the parties inside and outside the company
- A director should take into account the reputation and success of both the company and its owners in the long term
- The directors should be broad-minded and also take into account the interest of all the parties involved.
3. Promote the company’s success:
The directors should not merely come and go as delegates but they should use their authority to bring forth independent decisions whenever required. He/she must come up with their own thoughts and views about the company policies and other business opportunities.
4. Exercise duty with reasonable skill, care, and diligence:
He/she will be expected to have the proper knowledge and should have the skill to carry out certain official dealings. And hence, the director should be reasonably active and possess ample experience related to the field that they are in.
5. Avoid conflicts of interest:
The director should be able to analyze and shake off any direct or indirect interest that conflicts or might conflict with the interest of the company. In particular, it applies to the illegal abuse of any company property, business opportunity or official information.
Any imposed claim on a director’s loyalty has to be made known to the other fellow board members (shareholders). The board should come up with a fit solution to maintain its honesty and decision-making procedures.
6. Deny benefits from third parties:
The possible risk to a director’s objectivity is accepting gifts or benefits from third parties. A third party means:
- A person other than the company
- An associated corporate or
- A person acting on behalf of an associated corporate
It is always a good practice to stay away from such informal profits. Secondly, it’s a statutory requirement to bring forward, if there is any such existing dealings or proposals, to the board and owners.
7. Maintaining a record:
As we all know the director should fulfill all their legal duties while acting as a director…but how do they prove it?
All the decisions passed have to be recorded by conducting minutes of board meetings. By law, these records must be kept for a period of at least 10 years. These minutes stands as proof which shows that a director has fulfilled his duties.
Take advice from our specialists:
At times, meeting the above-said requirements might seem an onerous task. But, simply engaging a qualified accountant helps reduce the extra load.