You may be the proud owner of a new business, functioning from a credible business address, and envisioning a bright future ahead. But if you’re unsure about exactly what a company director’s role entails, then you may find yourself hindering your company’s progress. At best.
This article outlines all you need to know about the role of a company director and help you understand and master your own position at the top.
What Defines a Company Director?
A company director is chosen by a limited company to manage its daily business activities and finances to ensure all legal filing requirements are met. A company director is required to operate with integrity and abide by the law in order to make decisions for the betterment of the company and its members (shareholders). A director 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).
The Business Directory defines a director as:
“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.”
A company director can be:
- an individual (can be the company secretary, shareholder)
- a corporate body
- a partnership
- a group
- another limited company
- an organisation/business/charity
However, a company needs to have at least one regular, natural director. A company director cannot be:
- 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 Are the 7 Key Roles of a Company Director?
Although a company’s board may delegate certain powers to a board committee or an individual company, company directors technically act as a collective “board of directors”.
The Companies Act 2006 explicitly outlines the responsibilities of a company director. They’re also defined in the articles of association along with any service contract that may be in effect between a director and the business.
According to the Companies Act 2006, company directors must:
1.Act According to Designated Powers
A company director has to adhere to the company’s constitution and comply with the policy of the company and any delegated tasks — this includes the articles of association and wider constitutional issues, such as shareholder/joint venture agreements.
2. Promote the Company’s Achievements and Successes
A company director must actively exercise the dissemination of the company’s values and successes in order to sustain longevity and scale the company. Subsequently, the legislation states that a director must have regard to, but not limited to, the following:
- The potential long-term consequences of any decision made.
- Employees’ interests.
- 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.
3. Use Independent Judgement
A company director should use independent judgement, bearing the responsibility and accountability of making independent decisions. However, the company’s constitution/agreement must still be obeyed.
4. Maintain Reasonable Diligence, Skill and Care
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.
5. 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.
6. Reject Benefits from Third Parties
No third-party benefits should be accepted by a company director. However, it’s worth noting that there will be no recognition of wrongdoing if the acceptance cannot be regarded as something likely to cause conflict.
7. 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:
- There is unlikely to be a conflict of interest due to reasonable analysis to determine such a conclusion of the transaction.
- An interest has not been declared because a company director is not aware that they possess the interest, or that the other directors are aware of the interest.
A company can have more than one director (shareholders) during company set up and any time after. However, a corporate director is a term to depict a company or any other form of corporate body appointed asthe director of another company. A private company can employ as many corporate directors as it wishes (as long as there is a minimum of one appointed individual director).
When it comes to transferring shares, company directors may be prohibited from authorisation without members’ permission; members will have to pass a resolution to allow such authorisation.
If you want to find out more about a company director, or for any related assistance with setting up a company and registering a business address, contact Your Virtual Office London, today.