What is a Company Director responsible for?

What is a Company Director?

Someone that is elected or appointed to manage a company’s business and affairs is a company director. Every registered company must have at least one director whose responsibility is to promote the interests of the company and not their own.

At the last count, there were around 4 million UK companies registered at Companies House, with another 500,000 new companies being created each year. Companies range from one-person entities, where one person is the sole director and sole owner (shareholder), to companies with thousands of employees trading globally, whose shares are freely bought and sold on international markets on a daily basis. However, the same basic laws apply to all companies.

Company Director’s Responsibilities

This short note briefly examines a company director’s responsibilities.  As the name suggests, directors “direct” (manage) the company according to the company’s own rules. Usually these rules are in a standard format.  The rules are public documents and details for each company can be found for free, by carrying out an online search at Companies House. It is important to understand that directors owe duties to their companies that go beyond managing the company in accordance with its constitution.

Companies Act 2006 – Company Director’s Responsibilities and Behaviour

A company is viewed in law as being a separate legal “person” from the directors and shareholders. The company has to be managed by the directors in a way that promotes the interests of the company (as opposed to the personal interests of the directors or the majority shareholder). The Companies Act 2006 sets out the standards of behaviour for company directors (other standards apply too but they are beyond the scope of this short note). A director must:

• Act within their powers.
• Promote the success of the company.
• Exercise independent judgment.
• Avoid conflicts of interest.
• Must not accept benefits from third parties.
• Declare an interest in a proposed transaction or arrangement.

Company Director’s Responsibilities in light of the Coronavirus

At the current time, the Coronavirus has made big changes to our day-to-day lives in the UK, and all across the world. The responsibilities of directors have never been more challenging and demanding, with issues regarding supply chains, retaining and attracting customers, staffing and delivering goods and services.

Even the strongest of businesses are facing an unprecedented level of upheaval – with so little known about how this will affect us over the coming months and how it will change our society for the long-term, continuity planning is a crucial element of a director’s role.  

For directors of limited companies, there are practical steps that can support continuity planning in these situations:

• Cashflow projections to manage the money coming in and out of the company.
• Cost saving analysis to reduce expenditure.
• Communication with other directors through board meetings, as well as timely announcements to clients, staff and suppliers.
• Protecting the reputation of the company during this period of crisis.
• Keeping records such as minutes of board meetings and producing detailed management information to allow directors to make informed decisions as to the company’s state of solvency.
• Protecting against employer liability claims – employers need to ensure that the risk to employees being exposed to the virus is managed, and that their interests are protected.
• If insolvency looks inevitable, knowing at which point to bring in experts to support this.

A crisis on this scale requires a company director to harness their skills to promote the survival of the company and reduce its liabilities. The Covid-19 pandemic is an ever-evolving situation and business continuity planning will need to be constantly reviewed to protect and enhance a company’s position.

Labrums Company Law Team

We are experienced at advising company directors and shareholders on their rights, responsibilities and duties at all stages of the lifecycle of a company. Please visit our Company Law page for more details on a company director’s responsibilities, or contact Michael Labrum or Clare Jones by calling 01727 858807.