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Becoming a Director
Being a company director is a position attracting respect and prestige. However, a directorship also attracts responsibilities and potential personal liabilities. Unfortunately, the number of directors being disqualified continues to rise, and legal proceedings frequently follow.
What does a director do?
As a director, you will assist in the management of the company, normally as part of a board of directors. Directors’ powers are set out in the company’s Articles of Association and include effectively acting as trustees of the company.
You may also be employed by the company. If so, you should take legal advice before signing a contract of employment (service contract) with the company. Payment terms must be included in your service contract or in the Articles of Association.
What are a director’s duties?
Your duties as a director are primarily to the company and shareholders and include:
- Acting in good faith
- Exercising reasonable skill and care when acting for the company
- Taking into account the interests of the company’s shareholders, employees and other relevant parties
- Complying with the provisions of the Companies Act 1985 including regulation between a director and the company, and the production of public accounts and a director’s report
- Being aware of, and carrying out, your legal responsibilities concerning employee protection, health and safety at work, data protection, financial services and taxation.
In practice, your day-to-day duties and responsibilities should be outlined in your service agreement.
Are you a shadow director?
It is important to be aware that you don’t need to be formally appointed to be a shadow director. By law, you are a shadow director if you suggestions or instructions are normally carried out by the directors of the company, unless the advice is being given in a professional capacity – such as by a company’s accountant.
Many provision of the Companies Act 1985 apply to shadow directors as well as formally appointed directors. If you think you are a shadow director, you should seek legal advice to determine the extent of your obligations.
Dismissal and Personal Liability
Directors can be dismissed, but they can also be disqualified if they fall foul of legal requirements. These include conviction of certain indictable offences and, generally, fraudulent trading discovered during a winding up, unfit actions or persistent failure to comply with legal filing responsibilities.
Directors can be held personally liable if they enter into a contract on behalf of the company without authority; act recklessly or fraudulently; or carry out fraudulent or wrongful trading if the company becomes insolvent.
These can be criminal as well as civil liabilities for those who fall foul of the insolvency legislation. If you know or suspect the company is in financial difficulties, you should seel legal advice immediately.
How can we help?
Becoming a director is generally a worthwhile and rewarding step to take. However there are pitfalls, and legal assistance should be viewed as a sort of ‘insurance policy’. A small premium spent in time will provide peace of mind to allow you to act confidently and correctly.
If you have any queries about your responsibilities as a director please contact us.