6 Duties Of A Company Director You Should Know

Staffing in a company follows a set of guidelines. The role of a company director comes with additional legal responsibilities in the Companies Act 2006. A company director, appointed by member shareholders, is tasked with managing day-to-day business activities, administrative functions, and company finances, on behalf of and for the benefit of core members.

Under the Companies Act 2006, a company director has general duties based on common law rules and fair principles. It is crucial to develop a thorough understanding of your director’s roles and additional rights and duties to help you distinguish these separate responsibilities. Here is a functional guide providing directors with an overview of their fundamental duties.

To Act Within Powers

6 Duties Of A Company Director You Should Know
6 Duties Of A Company Director You Should Know

A company director must act in harmony with the decision-making powers outlined in the company’s constitution (or the articles of association). This governing document summarizes the rules and regulations for running the company.  The company director’s powers can vary from business to business, depending on whether the company agrees to articles of association or reformed articles. ‘Articles of association’ are rules about running the company agreed upon by the shareholders (or guarantors), directors, and the company secretary. Book cheap virtual office in London to enhance your knowledge of the resolutions and constitutional agreements.

To Promote The Company’s Success

A company director should act in such a way that helps them promote the company’s success for the benefit of the members. It is on each director to determine, in good faith, whether it is fitting for the organization to take particular courses of action. While doing so, according to the legislation, the director must know:

  • The employees’ interests
  • The company’s operational impact on the community and the environment
  • The need to build and strengthen the company’s relationships with customers, suppliers, and others
  • The necessity to act reasonably to the company’s members
  • The company’s desirability to reinforce its reputation for high standards of business conduct
  • The probable consequences of the decision(s) in the long term

This list aims to highlight areas of importance to responsible business behavior.

To Exercise Reasonable Care, Skill, And Diligence

In the changing dynamics, directors aren’t appointed purely by their name or reputation, but by the skill set and experience, they bring to the table. The benchmark is that of a reasonably hard-working and proactive person with professional training or skills worthy of the company director role. Company directors must apply care, skill, and diligence to the best of their abilities while carrying out all functions. They must also apply additional skills, knowledge, or experience concerning the company.

The director should be appointed based on the functions suitable for the assigned role in a company. The director’s role fulfillment is measured against objective and subjective yardsticks. However, a director’s understanding and abilities may not be enough in a fast-changing and competitive business environment.

To Avoid Conflicts Of Interest

The company director must avoid situations that could conflict with the company’s interests and affect objectivity and loyalty to the company. This applies to sensitive situations, like information, opportunity, or exploitation of any property. Here are some examples of interest conflicts:

  • Holding an advisory position in an organization that is the company’s competitor
  • Holding majority shares in a company that is, or could be, affected by the company’s activities (for example, a client, supplier)
  • Having other businesses or personal relationships with individuals or entities that could be affected by the activities of the company
  • Making personal gains or taking advantage of property, information, or opportunities belonging to the company, even when the company does not take advantage of these opportunities

If you are in a potential conflict situation, seek approval from other board members. If the board does not have the power to approve a conflict situation, it can refer the matter to the shareholders for approval.

To Not Accept Benefits From Third Parties

A company director must not accept benefits from third parties because you are a director and can do anything as a director. The Companies Act 2006 states ‘third parties’ as: “A person other than the organization, an associated body corporate, or even a person acting on a company’s behalf or an associated body corporate.”

To Declare Interests In Existing Or Proposed Transactions Within The Company

If you are indirectly or directly interested in a transaction or arrangement within the organization, you should declare the extent and nature of that interest to other directors. In case of a proposed transaction, you must declare your interest before entering it. In case of an existing transaction, you must do it as soon as possible. This duty is not considered infringing if:

  • Your interest in the transition is unlikely to give rise to a conflict of interest
  • An interest is undeclared because you are unaware that you have the interest or the other directors are already aware.

Wrapping Up

A company director owes a duty of confidentiality to the company and should use or disclose confidential data and information only for the company’s benefit. Under safety and health legislation, directors must ensure that the company complies with its duties linked to the safety, health, and welfare of its workers.

Image by Wilfried Thünker from Pixabay

Add a Comment

Your email address will not be published. Required fields are marked *