When individuals incorporate a company in order to take advantage of limited liability status, they also accept certain responsibilites under company and insolvency legislation. Directors who do not take these responsibilites seriously can find themselves open to legal action as individuals and, in certain cases, personally liable for the company's debts. It is therefore imperative that directors understand their obligations.
Any individual accepting an appointment as director must:
- Act for the purpose and within the powers granted to them and in line with the company’s memorandum and articles of association
- Promote the success of the company for the benefit of the shareholders. It should be borne in mind that consideration must be given to the effect of decisions made on employees, customers, suppliers and the environment. The effect of decisions on the reputation of the company, and the way in which the business conducts it’s affairs should also be considered.
- Act in a way that demonstrates he/she acts as an independent officer of the company.
- Exercise care, skill and diligence to a reasonable degree. The degree deemed “reasonable” will depend on a director’s background, qualifications and experience.
- Avoid any conflicts of interest that may affect business decisions. Any potential conflict or interest in any proposed decision or transaction should be made known to fellow directors.
- Receive no benefits from third parties in the exercise of his powers.
In view of the above, it should be clear that an appointment as director should not be treated lightly or as a "perk" of the job. If any concerns arise prior to appointment, it would be wise to seek independent legal advice. A seperate page, Directors Insolvency Issues, should also be noted