What is a director?
A director has overall responsibility for a company. There can be one or more directors who will share responsibility equally. They take control of the day to day running of the of the company, make important decisions and ensure that all accounts have been filed with Companies House on time.
What are the main duties of a director?
The general duties that directors must adhere to are under S171-177 of the Companies Act 2006. The duties are owed to the company as follows:
- S171 – Directors have a duty to act within their powers in the company’s Constitution and should only use those powers for the purposes for which they are conferred. Therefore, if you are setting up a company it is useful to get advice from a solicitor who will guide you through what powers you can include in the Articles of Association and the Constitution to allow you to run the company accordingly. Thereafter it is also useful to get an annual check up and review the powers to see if they still fit with the business plan moving forward.
- S172 – Directors have a duty to promote the success of the company and to act in good faith for the benefit of the members. They should consider the consequences of any decisions they make, the interests of their employees, the relationships with suppliers, customers and others, the impact of the company’s operations on the community and the environment, the desire to maintain a reputation for high standards of business conduct and the need to act fairly between the members of the company.
- S173 – Directors must exercise independent judgment.
- S174 – Directors have a duty to exercise reasonable care, skill and diligence.
- S175 – Directors have a duty to avoid conflicts of interest.
- S176 – Directors have a duty not to accept benefits from third parties.
- S177 – Directors have a duty to declare any interest in a proposed transaction or arrangement which gives rise to a conflict of interest, by giving notice to the other directors.
- Under Section 441 Directors have a duty to file accounts and reports with the registrar at Companies House every year.
The penalties for non-compliance of these duties could be a fine and disqualification as a director. If the breach is serious and criminal proceedings are taken against the director, the penalties could include fines and imprisonment.
There is a lot to consider here. Usually, the operations will run the same week in and week out and may only change occasionally. Directors should raise any concerns in their actions and decisions with their solicitor who can discuss issues as they arise or check retrospectively for peace of mind.
A director will need to be aware of other duties under various legislation including:
- Financial Services & Markets Act 2000
- Financial Services Act 2012
- Insolvency Act 1986
- Health & Safety at Work Act 1974
- Fraud Act 2006
- Data Protection Act 1998
Fraud Act 2006
Under the Fraud Act 2006 a director can be prosecuted for various offences. For instance, under Section 2 they could be found guilty of fraud by false representation if they dishonestly made a false representation, and they intended, by making the representation (i) to make a gain for themselves or another, or (ii) to cause loss to another or to expose another to a risk of loss.
Under Section 3 Fraud Act 2006, directors could be guilty of failing to disclose information if they dishonestly failed to disclose to another person information which they were under a legal duty to disclose, and intended, by failing to disclose the information (i) to make a gain for themselves or another, or (ii) to cause loss to another or to expose another to a risk of loss.
There can be serious consequences for breaches under the above legislation and more. Directors need to be aware of such responsibilities and act accordingly, always in the interests of the company, within their powers and the law.
Solicitors can advise directors on all issues concerning duties and the relevant legislation they must follow. This will give peace of mind to move forward with the day to day running of the business.