Hamilton Pratt

Directors duties and responsabilities

The directors of a UK company are appointed by the shareholders and are typically delegated with the day-to-day management and conduct of the business and to represent the company in its dealings with the outside world.  There are various legal safeguards to prevent any abuse of power by company directors.  Directors have both statutory and common law duties and are subject to a large number of restrictions and controls.

Directors must exercise due skill and care in carrying out their duties but no specific qualifications are required.  They must disclose certain personal information to the company and to Companies House to be kept with the public records of the company, eg date of birth, residential address and other directorships.

Like the shareholders, directors of a limited company are generally protected from personal liability.  In extreme cases, however, directors may be personally liable for any wrongdoing on their part.  A director's duty is first and foremost to act honestly and in the best interests of the company itself rather than individual shareholders.  A director also owes a duty to the company's creditors and must have regard to the interests of the company's employees.  Directors must not make a secret profit from their position as directors (ie without the company's consent) nor show bad faith towards the company.  The Companies Act imposes various restrictions on directors to ensure fair play by them in relation to the company's business and assets.  For example, a company is generally prohibited from lending money to its directors and directors must declare any interest which they have personally in any contract or arrangement which the company proposes to enter into.

Directors are not appointed for any fixed period and may be removed by the shareholders at any time.  In small private companies, the directors are typically all executive directors in the sense that they have specific functions in the company.  They are therefore employees of the company and enjoy the benefit of service agreements (employment contracts) which will govern the company's ability to remove them whether with or without compensation.  In larger companies or in subsidiaries, it is typical for some if not all of the directors to be non-executive, in which case they will simply be directors and not employees.

Meetings – directors and shareholders

Given their authority to bind the company, the directors should hold regular board meetings to make important decisions concerning the company.  The Companies Act does not expressly require meetings of directors to be held.  Nonetheless, it is difficult for directors to establish that they have acted properly unless they meet regularly.

Whilst the management of a company is in effect delegated by the shareholders to its directors, a company must generally hold an annual general meeting of its shareholders to deal with regular shareholder business (such as presentation of the annual accounts).  Other specific types of transaction or business require the directors to obtain shareholder approval and to call extraordinary general meetings as required.  The Companies Act specifies the period of notice required for all types of shareholder meetings although a private company may elect to dispense with various notice requirements and certain other specific requirements of the Companies Act.  In addition, shareholders may pass resolutions in writing without needing to meet formally.  A similar option is open to the directors if the articles of association of the company permit (as they usually do).

Records of all directors' and shareholders' meetings should be kept in the form of formal minutes.