Every private limited company must have a minimum of one director and often most companies will have at least two. Directors have a large number of duties ranging from how to act to specific tasks which they must fulfill. Some of these are prescribed by law.
General Duties
There are a number of general duties which apply to all companies as laid out by the Companies Act 2006. These duties include acting within their authority, acting in a way which promotes the interests of the company and exercising reasonable care, skill and diligence. These duties are designed to guide the way that a director should act during the course of running the company. This protects the interests of any members, creditors, staff and clients.
Specific Duties
There are also many specific statutory duties that a director must fulfill. Some of the main ones are:
Constitutional and Contractual Duties
Directors have a duty to act in accordance with any constitutional or contractual agreements, ie the Memorandum of Associations, Articles of Association, Shareholder Agreements, Employment Agreements, Service Agreements, Staff Handbooks, Board Resolutions etc.
Duty to exercise independent judgment
A director must first exercise judgment independently.
Duty to avoid conflicts of interest
Directors have a duty to avoid conflicts of duty, or where one may arise to disclose this to non-conflicted directors and allow them to make the decision regarding the relevant transaction.
Duty not to accept benefits from third parties
Directors must not accept benefits from third parties for being a director. Benefits cover both monetary and non monetary including for example, non executive directorship and even corporate entertainment. However, a director will not be in breach of this duty if the acceptance of such benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
Fiduciary Duties
Directors have a duty in law to act in good faith for the best interest of the company; to act properly; to not make secret profits; and to avoid conflicts of interest.
Management Duties
It is the duty of the director to manage the company with care. This generally means that decisions and actions should be taken that benefit the company. i.e. it may not be in the interest of the company to enter into a finance arrangement that the company cannot afford to maintain.
Compliance Duties
The directors are responsible for ensuring that compliance matters are dealt with both accurately and in a timely manner. This includes such things as registering with the Information Commissioner; taking out insurance; completing the Companies House annual return and maintain the company register.
Employment Duties
A director is responsible for the employment of his/her staff. This includes not only their contractual and statutory rights but also their general wellbeing and safety whilst at work. If certain health and safety offences are committed a director can be personally prosecuted.
Dealing with Taxation
Directors are responsible for calculating and accounting for the tax that falls due from the company (including PAYE, NIC, VAT, Duty and Corporation Tax). Penalties and fines can be levied for errors and for fraudulent tax evasion this can lead to criminal action by the state.
Insolvency
The directors are responsible for ensuring that the company is trading whilst solvent. Once they know that the company is insolvent they can be committing a criminal offence. The director has a duty to minimize the potential losses of creditors if the company is in financial trouble otherwise the director could be liable to prosecution.
When incorporating a limited company and appointing directors, care should be taken so that all directors are aware of the legal responsibilities placed upon them.
