What Is the Role of a Company Director?
A company director is one of the most important roles in a company, and the formation of a suitable board of directors can ultimately determine your business’ success.
Therefore, when you set up a company, you must ensure your company’s director shares the vision of your company’s direction. And if you’re a company director seeking information about your role and responsibilities, follow this guide to learn more!
What Is the Definition of a Company Director?
According to Business Directory, a company director is:
“An appointed or elected member of the board of directors of a company, who with other directors, has the responsibility for determining and implementing the company’s policy. A company director does not have to be a stockholder (shareholder) or an employee of the firm, and may only hold the office of director. Directors act on the basis of resolutions made at directors’ meetings, and derive their powers from the corporate legislation and from the corporate legislation and the company’s articles of association.”
Essentially, a company director is chosen by a limited company to manage its daily business activities and finances, and to make sure every legal filing requirement is met. A company director is required to operate honestly and lawfully, and make verdicts for the good of the company as well its members (shareholders). He or she can bind the company into valid contracts with third-parties (buyers, lenders, suppliers etc) and act as trustees for a company but not the individual stockholders.
With sound judgement and experience, a company director should thrive to make a company successful by promoting and achieving its business goals.
What Are the Roles and Duties of a Company Director?
Effectively, company directors need to act together as a “board of directors” but oftentimes the board may delegate specific powers to a board committee or to an individual company director.
The roles and responsibilities of a company director are set out in the Companies Act 2006, the articles of association, and any service contract that may be in effect between a director and the business.
Under the Companies Act 2006, company directors must:
Act Within Designated Powers
A company director has to adhere to the company’s constitution and comply with the company’s policy and delegated tasks — this includes the articles of association and wider constitutional issues, such as shareholder/joint venture agreements.
Promote the Company’s Success
Although each company’s success is relative, it’s agreeable that a company director will need to actively exercise the dissemination of the company’s values and success to garner longevity and company scalability. In this respect, the legislation states that a director must have regard to, but not limited to, the following:
- The possible consequences of any decision in the long term.
- The interests of the company’s employees.
- The implementation of the company’s business relationships with suppliers, customers and others.
- The company’s impact on environmental and community operations.
- The commitment of ensuring the company maintains a reputation for high standards of business conduct.
- The obligation to act fairly and justly between company members.
Carry Out Independent Judgement
A company director must use independent judgement, bearing the responsibility and accountability of making independent decisions. However, the company’s constitution/agreement must still be obeyed.
Consistently Exercise Reasonable Skill, Care, and Diligence
A company director is expected to observe the same skill, care, and diligence to the same standards as any other reasonably diligent employee with:
- the general knowledge, skill, and experience that may reasonably be expected of a person carrying out the same functions in relation to the company.
- the general knowledge, skill and experience that possessed by the company director.
Note: A director’s actual understanding and abilities may not be enough if more could reasonably be expected of someone in his or her position, therefore a sense of recognising and adapting to the reality of individual knowledge base is key.
Avoid Conflict of Interest
A company director must avoid a situation in which there is/may be a company related conflict of interest — particularly in relation to the exploitation of property, information or opportunity, regardless of whether it would serve to benefit the company.
However, there is no recognisable infringement if the following is true:
- After a thorough analysis of the situation in question, it is not likely that a conflict of interest will occur.
- The situation has been pre-authorised — authorisation may be greenlit via the articles of association, specific shareholder resolution or, in some circumstances, by the other directors who do not share the same conflict.
Conversely, the following non-exhaustive list outlines caveats that may cause a conflict of interest:
- Numerous directorships:a company director who is also part of a board of directors of a major shareholder, the pension scheme trustee company, a competitor or a customer or supplier of the company.
- Personal investments:a company director who is a major shareholder, competitor, customer/supplier of the company or one that owns property in proximity to the company’s property which could be affected by the company’s activities.
- Advisory position:a company director who also functions as an advisor (e.g. accountant/consultant) to the company or to the company’s competitor.
- Muster profits from the company: a company director who makes personal use of company information/opportunities, takes advantage of an opportunity previously declined by the company, or is in any situation where they can make a profit as a result of the director position.
A conflict of interest will also apply if any of the above situations are applicable to a person who is closely connected with the company director, e.g. spouse, partner, parent, child or other close family member.
Company directors who think they may be involved in a conflict of interest should take note of the following three remedies:
- Seek the board’s approval.However, if the board is powerless to authorise conflicts or cannot approve the conflict situation, shareholders may be contacted via the board in order to come to a resolution.
- Check the articles of associationas they may outline provisions relating to conflicts of interest.
- Regulate self-actions.Although a conflict situation may have been authorised by the articles of association, a company director must still act according to the company’s constitution.
Reject Benefits from Third Parties
A company director must not accept third party benefits. However, no infringement will be recognised if the acceptance cannot be regarded as something likely to cause conflict.
Declare Interests in Proposed/Existing Transactions/Arrangements with the Company
A company director has to declare the extent of any interest, transaction, or arrangement with the company (directly or indirectly) to the rest of the company directors.
No infringement will be recognised if:
- A conflict of interest is not likely to occur due to reasonable analysis to determine such a conclusion of the transaction.
- An interest has not been declared because a company director is unaware that they possess the interest, or that the other directors are aware of the interest.
Who Is Eligible to Be a Company Director?
A company director can be in the form of any of the following:
- an individual (can be the company secretary, shareholder)
- a corporate body
- a partnership
- a group
- another limited company
- an organisation/business/charity
Conversely, a company needs to have at least one regular, natural director.
Who Is Eligible to Be a Company Director?
A company director cannot be any of the following:
- a company auditor
- a banned company director (cannot be a director of another company while their forbid is still in place)
- individual under the age of 16 years
- an un-discharged insolvent
What Is the Difference Between a Shareholder and a Company Director?
Firstly, let’s define what is a shareholder? A shareholder owns part, or all, of a company, while directors are chosen by shareholders to supervise every operational and financial aspect related to the smooth running of a company.
What Is the Difference Between a Company Secretary and a Company Director?
A company secretary is an appointment by the company directors. Company secretaries assist with duties that could help reduce a company director’s workload and consequently increase efficiency. Almost all the directors’ duties can be assigned to a company’s secretary. However, legal liability for these duties eventually falls upon the directors.
What Is a Corporate Director?
A corporate director is a term used to depict a company or any other form of corporate body appointed as the director of another company. A private company can employ as many corporate directors as it desires during, or after, the company has been established, as long as there is a minimum of one appointed individual director.
Appointing corporate directors can be advantageous, particularly when a company is established. The expertise, guidance and support of an established corporate director can be very beneficial to a newly formed business.
What Details of a Company Director Can Be Found on the Public Record?
The following details of directors are put on the public record by Companies House:
- Natural director
- Title, full first name(s) and surname, plus any former name(s)
- Office address (residential or other)
- Date of birth
- Date of Appointment
- Corporate director
- Registration place of corporate director
- Registered name and number of corporate directors
- Principal address of corporate director
How Many Directors Are Required to Enlist a Limited Company?
There is no restriction to the number of directors a company can appoint during, or after incorporation, but at least one director is requiredfor registering a company.
One individual can be the shareholder and sole director of a company. Alternatively, a company can have multiple shareholders and directors during company set up and any time thereafter.
Whenever there is doubt over the responsibilities of a company director, the Companies Act 2006 should be referred to as an essential guide. Additionally, the articles of association should be thoroughly understood by both the company and the company directors.
Do you want to find out more about company directors and what their roles and responsibilities entail? Contact our dedicated company formations team now for expert advice.