The Duties of a Company Director

Who is a Director?

Directors are those that are registered at Companies House as such and relate to limited companies. Whilst in most cases directors are formally appointed there are cases where an individual may be held to be a director by virtue of the fact that they, in reality control the company despite not being formally appointed. All directors, regardless of how they are appointed are subject to controls over the way in which they undertake their role.  

Background to Director’s Duties

Prior to the enactment of the Companies Act 2006 director’s duties were very much made up from case law. This meant that whilst directors were expected to behave in a certain way it was not formerly laid out in the same way as it now is in the Companies Act 2006. In reality the substance of the requirements have not changed considerably but by formalising them through statute more attention has now been drawn to the area of director’s duties causing an increase in understanding as well as fear for those undertaking a less formal, non-executive role.

Duty to Promote the Success of the Company

In accordance with section 172 a director is required to act in a way that promotes the success of the company. This means that directors will be required to consider a range of factors when making decisions such as the interests of the shareholders, the interests of the employee and the wider impact that the decisions are likely to have. It is thought that this may even extend as far as considering environmental issues.

By having such a wide range of factors that have to be taken into account the role of the director has become considerably harder although ensuring that suitable documentation is maintained surrounding how decisions have been made will often be deemed sufficient. (Normal)

Duty to Act with Reasonable Skill, Care and Judgement

Another requirement that has caused directors to rethink the way in which they operate is seen in section 174 which is the duty to act with reasonable skill, care and judgement. According to the provisions of the statute the directors must show reasonable skill, care and judgement based on both the level of skill, care and judgement that one would reasonably be expected to show given the nature of the role and also based on the actual level of skill and care that the individual has.

For example a finance director who is a qualified accountant would be expected to show a level of skill and care that is higher than a finance director without accountancy qualification.

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