Becoming a director of a company can be a fulfilling and satisfying position. The role entails a high level of trust and responsibility, and you will need to follow statutory rules and duties.
You will be legally responsible for running the company and the failure to follow these rules could lead to legal consequences.
Directors have the authority to make important business decisions on behalf of the company. The duties are designed to protect the interest of the company and to ensure the company is put first.
As a company director, you must execute a set of seven duties under the Companies Act 2006.
The Companies Act aims to make a directors’ duties more consistent, certain and accessible.
The seven duties in force are:
Act within powers
A director must act in accordance with the company’s constitution and must only exercise their powers for the purposes which they were granted.
Promote the success of the company
A company director must act in the way they consider to be most likely to promote the success of the company.
Whilst success is not defined in the Act itself, the Government guidance suggests that this success would be a long-term increase in value.
Exercise independent judgment
A director must make their own decisions and exercise independent judgement.
However, this does not prevent you from acting in accordance with the agreement authorised by the company’s’ constitution.
Exercise reasonable care, skill and diligence
Under this duty, a company director must exercise reasonable care, skill and diligence, that would be exercised by a reasonably diligent person with:
- The general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company
- The general knowledge, experience and skill that you possess
Avoid conflicts of interest
A director of a company must avoid any situation in which they have, could have, or may conflict, with the interests of the company.
Refuse benefits from third parties
A director is not permitted to accept benefits from a third party which make a secret profit, because they are in the position of a director.
Declare interest in proposed transaction or arrangement
If a director has a direct or indirect interest in a transaction or arrangement, you must declare the nature and extent of that interest to other directors or the board, before starting the transaction.
This guide is designed to break down and highlight the key points of the duties. However, please bear in mind this is a complicated area and requires strict compliance.
These rules also apply to shareholder directors in the same way as other directors, which is important to keep in mind.
If you would like more detailed advice on becoming a company director, get in touch today.