Helen Mead
Partner, Head of Corporate Finance

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Directors’ duties

Directors' duties

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Helen Mead
Partner, Head of Corporate Finance

helen.mead@asb-law.com

Directors’ duties

Your company is incorporated and you have taken on the position of director. The company website and letter headed paper identifies you as a director and everyone appreciates the great powers that you yield on behalf of the company. But with those powers come responsibilities…

Directors’ duties are codified by the Companies Act 2006. It is vital you appreciate your ongoing obligations as a director as failure to perform correctly can lead to criminal and civil prosecution.

The seven general duties under the Companies Act 2006 are:

  1. to act within powers (i.e. in accordance with the governing documents)
  2. to promote the success of the company
  3. to exercise independent judgment
  4. to exercise reasonable care, skill and diligence
  5. to avoid conflicts of interest
  6. not to accept benefits from third parties
  7. to declare an interest in a proposed transaction or arrangement.

Beyond the seven general duties, a director must avoid other breaches of various statutes (including, not taking bribes, not wrongfully trading when the company is insolvent, complying with various health and safety regulations and making relevant filings at Companies House).

A director must always act in a manner which benefits the company and its shareholders as a whole, rather than for their own personal gain. It is incredibly important that directors act diligently with integrity and commercial sense to avoid being in breach of their obligations.

Directors must also consider the impact that their decisions may have on all the shareholders as it is possible for shareholders to bring actions against the company on the grounds that they have been prejudiced as a minority shareholder.

Should a director breach their duties they can find themselves disqualified from acting as a director in the future and they could be personally liable for the defaults of the company which they ran. Furthermore, with the expansion of corporate manslaughter laws, a corner cut here and there may result in a company becoming liable for unlimited fines.

Making filings at Companies House to appoint yourself as a director may be easy, but it is very important that you consider carefully all the responsibilities that you have signed up to, especially as your business grows and you have more shareholders to account back to.

 

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