Duties and Responsibilities of Directors

What are the Duties and Responsibilities of Directors?

“Directors have a lot of duties and responsibilities as agents of the company. They are responsible for the management of the company and are given powers by the company’s articles. They can exercise all the company’s powers. These duties also determine how a director can and cannot act. A breach of these duties will incur liability to the director and action may be taken against him.”

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What is Included?

  • What are the Duties and Responsibilities of Directors
  • Duties of a director
  • Responsibilities of a director

Duties of a director

Under Business law of UK, A director must act within powers. He must use his powers for a proper purpose and must act within the powers given to him by the company’s memorandum and articles of association. Acting outside these powers is a breach by the director.

A director must promote the success of the company. He is to act in good faith considering what is best for the company. Some factors to be considered include the interests of the company’s employees, the impact of the company’s operations on the community and the environment, the need to act fairly between members of the company and so on. This duty is not limited to the board decisions made but applies to all decisions taken by any director.

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duties and responsibilities of directors of a company

A duty to exercise independent judgement. This ensures that they act independently in their decision-making rather than contracting it out. This does not mean that a director is prohibited from taking advice. This duty protects the right of the director to enter into a contract on behalf of the company that may in the future require the directors to act in a particular way, provided it is done in good faith in the interests of the company.

A duty to exercise reasonable care, skill and diligence. This duty seeks to ensure that they carry out their functions sufficiently, carefully and competently. A director will still be liable under this duty even if they have delegated the responsibilities lawfully to another director or person. They are expected to exercise their power of supervision adequately. This duty will therefore be breached if the director is incompetent and falls below the required standard of behaviour.

A director must avoid conflict of interest. He is expected to avoid any situations where he has or can have a direct or indirect interest that conflicts with the interests of the company.

A duty not to accept benefits from third parties. A director must not accept anything from a third party given to him because he is a director or him doing anything as a director. The exception is if the benefit cannot reasonably be taken as likely to give rise to a conflict of interest.

A director has to declare interest in proposed transactions or arrangements with the company. He must declare the nature and extent of that interest to the other directors. This ensures that the board of directors fully discloses a possible conflict of interest before deciding whether to enter the transaction with the other directors. The declaration can be made either at a director’s board meeting or in writing outside of the board meeting.

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Responsibilities of a director

A director is responsible for ensuring that full accounts are produced for each financial year. A company must keep adequate accounting records otherwise it commits an offense. These accounts must give a true and fair view that is the assets, liabilities, financial position, and profit and loss of the company at the end of the financial year.

A director is responsible for submitting a confirmation statement to the Registrar of Companies once every 12 months. A company’s first confirmation date is the anniversary of the date of its incorporation. This statement is used to ensure that the information kept at Companies House is kept up to date. This must be done within 14 days after the company’s confirmation date. Failure to do this on time is a criminal offense.

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