The eight great duties of a company director

duties of a company director
Duties of a Company Director

For businesses big and small, good governance and board effectiveness are needed now more than ever. A director’s responsibilities are many, but every director owes ‘eight great’ duties to their company. in this article we discuss the duties of a company director.

A director’s prime responsibility is towards the Company, not the company’s shareholders.

An easy way of understanding this is to think of the company as a separate legal entity. It is very much like an independent person. A company has its rights and liabilities, just like any private citizen.

It is important to remember that a company is not the same as its shareholders, and this is why it’s essential to understand the duties of a director and where they lie.

A director’s duties are owed to the company

Companies must be able to trust their directors. Directors owe their fiduciary (‘of trust’) duties to the company and not to shareholders. The various Company Acts around the world are clear on this.

When a person registers as a new director, the statement is clear. They must acknowledge that, as a director, they have “legal duties and obligations”. This means that if in the future, a director pleads he/she was unaware of their duties, this defence will not stand up in court.

The eight great duties

Most of the Company Acts across the globe set out the following eight general duties of company directors:

  1. To act in good faith in what the director considers to be in the interest of the company;
  2. To act honestly and responsibly concerning the conduct of the affairs of the company;
  3. To act in accordance with the company’s constitution and exercise his or her powers only for the purposes allowed by law;
  4. Not to use the company’s property, information or opportunities for his or her own or anyone else’s benefit;
  5. Not to agree to a restriction of his/her exercise of independent judgement;
  6. To avoid any conflict of interest between the director’s duties to the company and his/her interests;
  7. To exercise the care, skill and diligence which would be exercised in the same circumstances by a reasonable person;
  8. To have regard to the interests of the company members, and have regard to the interests of the company’s employees in general.

Duties within duties

Apart from the ‘eight great’ duties, directors have many other responsibilities – duties within duties if you like. When making decisions as a director, you also must consider:

  • Potential long-term consequences for the company
  • The interests of your employees
  • Maintaining your company’s good reputation
  • The need to nurture and grow profitable relationships with customers and suppliers
  • The company’s impact on the environment and local community

The need to act reasonably between members, for example, treating those with few shares in the same way as institutions with a much more significant shareholding.

Are you up for the challenge?

Before accepting a role as a director or non-executive director, you must be honest with yourself. Are you capable of handling the responsibilities? In his book, ‘A practical guide for company directors’, David Duffy, writes: “When appointed, directors assume responsibilities and duties that must be carried out diligently. If they are not prepared to assume these responsibilities, then they should not become a director.”

What can happen to a director who does not carry out their duties?

If a director breaches company law, they can face serious consequences. If a shareholder, creditor, or the company, suffers loss or damage, they can take action against a director personally. However, in most cases, the company pursues directors who have failed in their fiduciary duty.