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Responsibilities of a company director

Many people reading this will no doubt already be company directors, while a few may be thinking about establishing a company and becoming its director.

The beginning point for any company’s director, and consequently the starting point for any company’s director, is to learn a little bit more in detail about the roles and duties of the directors.

Although a company is owned by its shareholders, they entrust the administration of the company to the directors (even though in most cases, the shareholders and the directors are the same people). Clear and reasonable duties for the directors are essential both to safeguard the interests of the subscribers as well as the directors themselves. Consequently, the directors understand what is required of them, what they are to do and what not to do. Should the directors fail in their duties, the consequences could be serious.

 General duties that apply to all directors as laid out by the companies’ act 2006:

  • A responsibility to function within their powers, as laid out in the company’s Articles of Association, memo and as well as other sources
  • A responsibility to improve the company’s success.
  • A responsibility to apply independent judgements
  • A responsibility to apply realistic diligence, skill and care
  • A responsibility to circumvent clash of interests
  • A responsibility to reject benefits from any third party
  • A responsibility to unveil interests in a planned arrangement or transaction

Even though it has no advantaged status in law, the obligation to promote the company’s success lies at the heart of a director’s responsibilities. Other responsibilities of directors, whether it is specified in UK legislation or not, can be seen as following on from that. In increasing the company’s success for the benefit of its shareholders as a whole, the Companies Act states that directors need to think about the effect of decisions on the reputation of the company and the interests of other subscribers including workers, shareholders, clients, suppliers, as well as the community at large.

Generally, the directors may apply all the powers of the company. However, the company’s Articles of Association may set limitations on the powers of the directors in some areas– a common instance includes limitation on new shares allocation in the company among others. Thus, it is typical of the directors to offer new shares to the current shareholders prior to inviting applications more widely.

Additionally, the articles will define how decisions should be made. Although limited company directors will, as a board, jointly bind the company, the articles generally give power to the board of directors to entrust powers to each director as they deem fit.  The specific role of each director within a company may vary based on the company size, the number of directors, and the nature of the company’s business. The role, expertise and experience of a director will likewise have an impact on their areas and influence their areas of responsibility and coverage.

CLOUD ACCOUNTING LLP

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