The position of director brings both rewards and responsibilities upon an individual.
Whether you are appointed to the Board of the company you work for or you are involved in establishing a new business and take on the role of director you will feel a sense of achievement.
However the office of director should not be accepted lightly. It carries with it a number of duties and responsibilities. We summarise these complex provisions below.
This is particularly important following the advent of the Companies Act 2006. The Act received Royal Assent on 8 November 2006, and is being introduced in a series of stages. All of the provisions of the Act will be implemented by October 2008*. The legislation will replace all existing Company Law, except for the provisions relating to company investigations and community interest companies (CICs).
Companies
You can undertake business in the UK as either:
• an unincorporated entity, ie a sole trader or a partnership or
• an incorporated body.
An incorporated business is normally referred to as a company. Although there are limited liability partnerships and unlimited companies the vast majority of companies are limited by shares. This means the liability of shareholders is limited to the value of their share capital (including any unpaid).
A limited company can be a private or public company. A public company must include 'public' or 'plc' in its name and can offer shares to the public.
The responsibilities and penalties are more onerous if you are a director of a public company.
Directors
When you are appointed a director of a company you become an officer with extensive legal responsibilities. The Companies Act 2006 sets out a new statement of the general duties of directors. This statement codifies the existing ‘common law’ rules and equitable principles relating to the obligations of company directors. The existing common law had focused on the interests of shareholders. The new law extends this by highlighting the connection between what constitutes the good of the company and a consideration of its wider corporate social responsibilities.
The legislation stipulates that directors must act in the interests of the company and not in the interests of any other parties (including shareholders). Even sole director/shareholder companies must consider the implications by not putting their own interests above those of the company.
The aim of the codification of duties is to make the law more consistent and accessible. It should be noted that other existing duties will continue to apply alongside the new statutory duties.
The Act outlines seven new statutory directors' ...
