There are a number of different pieces of legislation and implications that get implemented which tell organisations, directors of said organisations and employees how they should act. One of the key pieces of legislation is the Companies Act 2006, which imposes several general duties on a director of a UK limited company. There are many things that a director needs to understand and certain ways a director should behave, all of which are outlined in the Companies Act 2006. These are all going to be covered in more detail throughout the below article.
What Is the Role of a Director?
There are two bodies of people through which a company acts, these are the shareholders and the board of directors. The board of directors are responsible for the overall management of the company’s business. They are key when it comes to making strategic and operational decisions for the company, and are also responsible for making sure the company is meeting its statutory obligations. As such, the role of a director is to participate in board meetings in order to allow the board to make decisions about the company and generally ensure the company’s obligations are fulfilled.
The directors, generally speaking, are the agents of the company. Directors are appointed by shareholders in order to manage the day-to-day affairs of the organisation. The basic rule is that the directors are going to act as a board, but the board will also be able to delegate powers to individual directors, or alternatively, to a committee of the board.
It might also be the case that you are a shareholder or an employee of the business (or both). If this is the case then you have additional rights and duties which go beyond that of a director. There needs to be a distinction drawn between these separate roles so that your duties can be carried out properly. So, with that in mind, what are the general duties of a director and what are the best practices that they can be involved in?
The Best Practices and General Duties of a Director
The Companies Act 2006 establishes what the best practices and general duties of a director are. They include the following:
- Act Within Your Powers
The first thing that you need to make sure you’re doing as a director is ensuring that you are acting in accordance with the constitution of the company, meaning you are only exercising your powers for the correct purposes for which they were given. So, what is the company’s constitution? The company’s constitution includes its articles of association and resolutions, as well as the agreements of a constitutional nature (for instance, the shareholder or joint venture agreements). There are templates for these documents that a lot of companies use; however, you are going to need to familiarise yourself with the terms of the documents that form the constitution of your company so that you know you will be able to act properly within your powers.
- Promote The Company’s Success
When you act and carry out tasks on behalf of the company, you need to make sure that you are acting in a way that will promote the success of the company and benefit the members of the company as a whole. This is an important duty and usually the focus of multiple discussions surrounding the director’s duties. This can be found within section 172 of the 2006 Act.
What does success mean? It obviously has various meanings but in this sense, it refers to a long-term increase in the value of the company, meaning there could be short-term defects, like lost money, but as long as this is done with the longevity of the business in mind, directors are still promoting the success of their business. The definition is really up to the director, who needs to decide whether in good faith what they are doing will benefit the organisation.
To help with deciding whether or not a decision will benefit a company, the 2006 legislation sets out what a director needs to have regard to. It includes the following:
- What are the likely consequences of the decision in the long term?
- Is this in the interests of the employees of the company?
- Will you be able to foster the company’s business relationships with the likes of customers, suppliers and others?
- What impact will the decision have on the company’s operations, on the surrounding community and the environment?
- Will the decision allow the company to maintain a reputation for business conduct and high standards?
- Will the decision allow for equality for various members of the company?
The above list clearly isn’t exhaustive, but it does provide some helpful guidelines when it comes to highlighting specific areas of the business and the behaviour of the business. These factors need to be properly considered, directors shouldn’t just treat them as a pointless box-ticking exercise. Other relevant factors specific to the business and the market it operates in also need to be considered.
- Exercise Independent Judgement
Directors also need to make sure that they are exercising independent judgement and making their own decisions when working out how to progress with the company. This doesn’t prevent people from acting in a specific way within the company’s constitution, it also doesn’t prevent people from taking any kind of professional advice, what it does mean is that the eventual decision needs to be made by you and you should use your judgement throughout.
Do You Need Help with Your Duties as a Director?
As can be seen above, there is a lot of responsibility that comes with being a company director and as such, if you need help then you should be sure to reach out to the likes of Leading Corporate Recovery, whose team of experts will be able to assist. If you have any questions or require any further information then do not hesitate to get in touch.
