Directors duties

If you are a statutory director of a company, the law places you under a legal obligation to follow specific duties a fiduciary duty and a duty of care and skill.

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A fiduciary relationship is a relationship of trust. This places a duty on statutory directors to act within the best interests of the company, in good faith and honesty.

These are a statutory director's legal duties:

  • To act only within the powers conferred upon him by the company’s constitution (the Articles)
  • To promote the success of the company. This involves the director acting in good faith and following best practice with regard to business transactions and the impact on the environment and community
  • To exercise independent judgement
  • To manage the company with reasonable care, skill and diligence
  • To avoid conflicts of interest
  • To refrain from accepting gifts from others
  • To declare any personal interest in proposed transactions/company business

Note that these duties only apply to statutory directors. Read Different types of company director, for information on other types of directors. Only the company can enforce directors’ statutory duties.

To whom are the duties owed?

The duties are primarily owed to the company and its shareholders, but can also be owed to other interested parties depending on the circumstances (eg employees and creditors).

The consequences of not complying:

  • Breach of a director's duty can carry the penalty of the director having to reimburse the company for any loss or damage it has suffered
  • The director can be held personally or criminally liable should he be involved in any wrongful activity
  • The director can be disqualified from acting as a director

How to stay on track:

  • Keep up to date accounting records and reports
  • Prepare a Director's Report providing information on the affairs of the company
  • Keep minutes of board meetings to record decision making and help ensure the directors think about their duties when making decisions on behalf of the company
  • Follow proper procedure
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