What are the 10 Duties of the Company Director?

As a limited company, there must be a director(s) present. A company consists mainly of two sets of people, the directors and the shareholders.

The directors are the agents of the company, they participate in active decision-making for the company and they participate in every activity regarding the development of the company. The directors are appointed by the shareholders to manage and direct all activities of the company ranging from decision-making, annual account filing, tax returns and matters regarding employees of the company.

A director can also be a shareholder of the company and this gives the director extra rights and value to the decision-making of the company. Although the director has additional rights and values, it is very essential to identify which role is necessary for the situation at hand.

A company without an active director will be struck off by Companies House. This is to tell the importance of directors to the company they direct. During the investigation or supervision of a company by authorities, the director will be the one to answer the questions regarding the company and not the shareholders.

The directors can also legally close down the company by sending their intention to Companies House.

Duties of the Directors

The Companies Act 2006 outlines some roles assigned to directors of limited companies and which they must abide by.

The duties of the directors as outlined by the Companies Act 2006 are discussed below

1. Act Within Powers

As a director, you must act according to the constitution of the company and in no case should you use your power for a negative purpose or a purpose for which the powers were not given.

The constitution of a company consists of the articles of association and resolutions and other agreements in constitutional form like the shareholders or joint ventures agreement. All duties of the director as regards to that particular company are listed in the article of association and the director must abide by the rules.

In no case should a director use their power as opposed to the articles of association of the company. The director cannot make personal decisions for the company and just abide by all the processes of decision-making outlined in the articles of association.

2. Promote the Success of the Company

When a director acts and makes decisions, it must be for the success of the company and not for the detriment of the company. The decision must be in favour of the company and its members including employees.

This is the most important sort of director and is mostly considered when discussing the duties of a director. It is mostly referred to as the "section 172 duty".

In the case of the company's success, it means a long-term increase in the market value of the company and this is due to the positive contribution of the directors to the company. The director must push the company to make certain decisions that will increase the value and success of the company.

The legislation trying to outline what is considered to increase the success of a company lists out what a director must take into consideration

• What benefits the employees of the company
• Future consequences of decisions taken in the company
• The effect on the operation of the company to the community
• The need to have a good business relationship with investors, suppliers and clients or customers
• The maintenance of good reputability by the company
• The need to be fair in decision-making regarding members of the company

The above list does not contain all that a director should put into consideration but it is just to give a view on how the director should act to put more value to the company and maintain a high and good reputation for the company.

A company is to provide a clear and well-detailed report on how well the directors of the company have performed their roles in making active valuable decisions for the company's success.

This report mostly depends on the size of the company as large and medium-sized companies take this more significant than small companies. In large companies, the report will include all active decisions of the director regarding the company and should also include any misconduct of the director as opposed to the articles of association and Companies House.

If a director made a negative decision or defied any of the above considerations, then it should be included in the report and something should be done about the action of that director. Depending on the height of the offence, the sanction can range from suspension to removal of the director.

In recent times, it has been suggested that directors document their compliance with these considerations regularly. This documentation might be done during the board meetings of the company in the minutes of the meeting.

In the documentation, it should include every consideration and how the directors have taken their roles in favour of the considerations. It should be very detailed to provide a good explanation of the compliance of the directors to the company's rules and regulations.

In the case of a director disobeying any of these rules or going against any of these considerations, it should recorded and any punishment given to that director should also be taken down. Consistently doing this will help the company to regulate the actions of the directors regarding the success of the company.

3. Exercise Independent Judgment

As a director of a company, you must make individual decisions and also make independent judgments regarding matters of the company.

Making personal decisions and judgements does not stop you from acting according to the constitution of the company or the rules of the Companies House as stated in the Companies Act 2006.

You can also choose to receive professional advice from other directors or other people you find worthy, but it is left for you to make a personal judgement on the matter at hand. You should make sure not to follow other people's decisions but make sure the decision is solely what you want regarding the situation in question.

4. Exercise Reasonable Care, Skill and Diligence

Although you do not need a special skill to become a director of a company, it does not mean you have to behave the way you want as a director. As a director, you must take everything concerning the company with care.

A director is to act responsibly and accordingly to ensure the smooth running of the company.

According to the Companies Act 2006, a director must exercise the same care, skill and diligence that would be exercised by a diligent person with:

The general knowledge, skill and experience that may reasonably be expected of a person carrying out the same function as you about the company

The general knowledge, skills and experience that you possess

Although all people do not act the same, you should make decisions like someone in that same position will take for the company's success.

5. Avoid Conflicts of Interest

As a director, you must avoid a situation in which you have or are about to have a conflict of interest with the interests of the company.

This duty of a director also applies to the exploitation of the company's properties, information or any form of opportunity if the company even if the company could take advantage of the property, information or opportunity.

Where Does the Duty of a Company Director Does Not Apply?

This duty of the director does not apply if:

1. If the condition in question cannot give rise to a conflict presently or in the future and is mainly for the benefit of the company. Before making a decision, it is important to do a proper analysis of the situation and confirm if it has the potential for conflict with the interests of the company or its members.
2. If the situation in question has been previously authorised. The authorisation of that decision may be written in the articles of association and should be made by special shareholders or in some cases, other directors who do not share the same conflict.

Although a person cannot determine an action or decision that can lead to a conflict of interest in the company it is possible to point out some instances that can lead to a conflict.

What are the situations that could lead to a conflict of interest?

Some examples of situations that could lead to a conflict of interest include

1. When as a director, you are part of a supplier, pension scheme, trustee company, a competing company or a customer of the company. This can give rise to a conflict of interest when some decisions do not sit well with you as a member of another company.
2. When you as a member or director of the company have a property, asset or anything that will be greatly affected by certain decisions of the company.
3. When you are an adviser or consultant of the company or to another company or competitor company. This may raise a conflict of interest since others will take your opinion as negative to the company.
4. When as a director, you have an opportunity that is related to the company or is a result of your directorships at the company and can profit you individually.
5. If any of the above situations is connected to someone related or connected to you as a director of the company.

What to Do as a Company Director When Conflict of interest Occurs

If any of the above happens or any other situation that you feel might result in a conflict of interest, then you can take the following steps

1. Check out the articles of association

Whenever you're in a conflict situation as a director of a company, you should check out the articles of association to see if they include how to react during a conflict situation in the company. Some of the provisions regarding conflict situations might include

2. Pre-authorised conflicts

some common situations like multi-directorship or holding a position relating to the company pension scheme of the company, might lead to a rise in conflict of interest.

Most of these are included in the articles of association of ss a director of a certain company, you can actively participate as a director in a competitor company or a pension scheme relating to your company. Once it is approved then you can use that to resolve any conflict of interest that might arise.

3. Abide to rules

in conflict situations, it is important to always abide by the rules of the company to avoid any more severity of the situation. You should make sure you perform all your duties as director of the company when you're in a conflict situation.

If as a director, you solely and strictly follow all the rules of the company and stick to your conduct, you prevent certain circumstances such as keeping information that is important and confidential safe. This information might be that of the company or a third party.

4. Always maintain positive behaviour

Even if the conflict is approved by the board or the article of association, you should always maintain good behaviour. Always make sure any behaviour of yours will not lead to the detriment of your image and that of the company but to the success of the company.

Always abide by the articles of association and do everything in your power to avoid conflict of interest within the company. Although not all conflict situations can be prevented, it is important to make sure to avoid as many as possible.

5. Do Not Accept Benefits from Third Party

As a director of a company, you must not in any circumstances receive a benefit from a third party of your company for as long as you remain director of the company.

However, this duty of a director does not apply if the situation is not likely to cause a conflict of interest in the company. It also doesn't apply if the benefit is from a family or friend and has no regard for the company.

6. Declare Interests in Proposed or Existing Transactions or Arrangements With the Company

As a director, if you are directly or indirectly interested in any transaction or agreement with the company, you must state its nature and degree of interest to the other directors of the company.

If in this case, it is a transaction, then as a director, you must inform other directors or members of the company before the transaction takes place and if the transaction has already happened then you should do well to inform the directors as soon as possible.

This duty, however, does not apply if:

• The interest you have in the transaction or agreement has been analysed and cannot lead to a conflict of interest or
• The interest has not been declared because you are unaware that you have the interest or the other directors of the company are always aware of the interest.

7. Maintain Statutory Filing and Reporting Obligations

Directors are given the right to maintain several filing and reporting obligations. These filings may include

• Company registration for Corporation Tax
• Company registration for VAT and Pay As You Earn (PAYE)
• Filing annual accounts for Companies House
• Filing annual confirmation statement for Companies House
• Paying business taxes
• Maintain the statutory company registers and accounting records
• Reporting change in company details. This change might be a change in the registered office address of the company, appointment or removal of a director, a change in any details of an existing director, subscribers or shareholders information, allocation of shares and transfer of shares.
• Maintaining all company's addresses, signatures and stationeries

In recent times, some companies have chosen to employ a secretary to perform some of these duties like preparing annual accounts, maintaining records, and some other duties. This does not move the duty to the secretary but the secretary is acting as an aid for the directors and the director must monitor all these to make sure there are no errors in filing them.

The directors should always ensure all filing is done on time and all taxes are paid, the director should also make sure to check the company's information on Companies House registers and report any error in any information of the company.

8. Complying With Additional Legislation and Regulations

Aside from the above duties by Companies House, directors are subjected to some other additional legislation and regulations which they must abide by. Some of these legislations and regulations include:

• Company trade descriptions
• Laws of competition
• Employment laws
• Laws regarding health and safety
• Consumer rights laws
• General Data Protection Regulation (GDPR)
• Environmental regulations and legislation
• Licensing laws
• Hygiene and food safety
• Equality and diversity
• Product safety laws
• Intellectual property
• Legislation and regulations specific to a particular industry
• Legal requirements specific to certain regulated professions

As a director of a company it is important to understand the type of business or trade your company does and understand the industry. This will enable you to understand the laws and to know which is mandatory to comply with.

Some of these laws and regulations can be done by a company's secretary. In most cases when the workload for the director is too much, the company employs a secretary to take care of some of these duties on behalf of the director.

Although, it is important to consult an advisor before appointing a secretary. This is to know how well the secretary will affect the company's growth.

Even if a company's secretary does it, it remains the duty of a director to carry out all these and the secretary is serving as a helping hand for the director. Some of these duties cannot be carried out by the secretary.

9. Report Personal Income

Most company directors receive their monthly salary through the Pay As You Earn (PAYE) scheme. This method is regulated by HMRC and most employers use PAYE as part of the payroll.

When as a director you receive your payment through PAYE, all taxes will be deducted by HMRC even before your payment gets to you. These taxes might include income taxes, class 1 National Insurance Contributions (NIC), and some other necessary taxes you need to pay as the director of a company.

While some directors receive taxable income from their companies, some directors who are also shareholders receive dividends for shares of the company which is mostly not taxable. As the company director, you must report your earnings to HMRC and ensure that all your taxes are paid.

This is called self-assessment, assessment is the registration of your untaxed income at HMRC to enable you to report your annual income and pay taxes. It is your duty as a director to register yourself for self-assessment. As long as you're a registered self-assessment member, you must ensure to report your earnings and pay your taxes every tax year.  

Learn more about 15 self-assessment expenses you can claim to minimize taxes.                                                                                                      

What Happens if I Breach Any of These Duties as a Director?

Once you're a director of a company, you must abide by and perform all your duties. Failure to do so might attract sanctions. In some cases, the breaching of the duties might not attract sanctions:

• If the director breaching the duty was known and signed by other directors
• If the decision taken by the director is for the benefit of the company and its members, then a lighter sanction might be given
• If the court gives the director an order to do so

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Conclusion

The directors of a company must adhere to all the listed duties to avoid sanctions or removal. All directors must try their best to abide by the rules and also make decisions for the success of the company. As a director, you're the agent of the company and the first line of defence for the company. If any document or relevant information leaves the company, it should be through you and the same if any document or information gets into the company. So you must make fair judgments and act accordingly for your image and the image of the company. There you have it 10 Duties of a company director. Do you have any questions about the duties of a company director, contact one of our experts for help today.