Directors Duties – I’m expected to do what?!

Setting up a limited company, becoming a director and running a company is a big step in the world of business which carries a heavy weight in terms of responsibility. Directors are tasked with making decisions that align with the interests of the business. Failure to comply with the requirements of a director, as set out extensively in the Companies Act 2006, can have significant, far reaching implications, including some criminal sanctions. It is important that, prior to setting up your company, or joining a company as a director, you are aware of the obligations expected of you.

A directors duties can be summarised as follows:

• To act within the powers of the company;
• To promote the success of the company;
• To exercise independent judgement;
• To exercise reasonable care, skill and diligence;
• To avoid a conflict of interest where possible;
• Not to accept any benefits from third parties; and
• To declare any interests in proposed or existing transactions or arrangements the company is involved in.

Why are these duties set out for directors?

A company is a separate legal entity, but as it is not an actual sentient being capable of making its own decisions, it can only operate by way of its directors. The directors therefore take on the responsibility, and the associated liability, of the actions of the company when assuming that role. There has to be a mutual relationship of trust and confidence between the company and its directors for the company to be able to operate successfully and within its powers and means. It is that expected relationship between directors and their companies that creates a need for these duties.

The duties will apply in different ways, all rank equally, and a director should bear these in mind in each particular circumstances of the business. If a decision would comply with one duty but breaches another, it will still fall foul of the provisions in the Companies Act. There can be some exceptions to this general rule, where a director is acting in a way that they consider, in good faith, to promote the success of the company for the benefit of the shareholders as a whole. This would allow for, for example, a director to close a particular part of the company, provided it is for the purpose of promoting the success of the company. However in all a director does, they must ensure that they comply with the duties expected of them.

How can Askews help me?

Your local firm of Coventry solicitors, Askews Legal LLP, has a dedicated commercial team who can assist with any queries you have relating to your company. For further advice or to obtain a quote, please contact Kuljeet Sandhu, Head of Commercial at Askews Legal LLP.