Who is a director?

The law imposes upon all directors the same duties and potential liabilities, regardless of the role they play and the basis of their holding office so it’s no good saying I’m a director but I don’t really do anything”.

For the purposes of looking at responsibilities, accountability and obligations there is no distinction between executive and non-executive directors, general managing directors and those responsible for specific areas only of the company’s business, nor between genuinely appointed directors or shadow directors.

An executive director has day-to-day responsibility for running the company’s business, or part of it.

A non executive director is normally expected to participate at board meetings and on board committees and working groups, but he will not have day-to-day responsibility for any operational aspect of the company.

A shadow director is “any person in accordance with whose directions or instructions the directors of a company are accustomed to act”. A person is not deemed a shadow director just because he advises the directors in a professional capacity.

Directors powers

The directors are generally responsible for the management of the company and they may exercise all the powers of the company. However, the extent of their authority may be restricted by the Companies Act and by the articles of association. For example, articles of association often include provisions and restrictions on borrowing by the company. Generally, the directors must act collectively as a board to bind the company although the articles usually entitle the board to delegate powers to individual directors as considered appropriate.

Directors duties

Directors should be aware that they are personally subject to statutory duties in their capacity as directors of a company. The company as a separate legal entity is subject to statutory controls and the directors are also responsible for ensuring that the company complies with such statutory controls.

The duties of directors, previous defined by case law, were codified in the Companies Act 2006 for the first time. The Act sets out seven general duties of directors which are:

• To act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
• To promote the success of the company for the benefit of its members
• To exercise independent judgement
• To exercise reasonable care, skill and diligence
• To avoid conflicts of interest
• Not to accept benefits from third parties
• To declare an interest in a proposed transaction or arrangement

It is the responsibility of the directors to ensure that the company maintains full and accurate accounting records. This includes the preparation of a balance sheet and a profit and loss account for each financial period of the company, and the presentation of these to shareholders and, subject to various exemptions, the filing of the accounts and report of the directors with the Registrar of Companies.

Directors liabilities

Directors may incur personal liability, both civil and criminal, for their acts or omissions in directing the company.

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Company directors