Guide to becoming a Company Director
Guide to becoming a Company Director
So, what do you need to know?
When taking on any role, it is important to understand the nature of your duties, and to whom these duties are owed. When considering taking up a directorship, it is of vital importance to carry out the following:
- To ensure that you have sufficient information about the company, its members, and its position in the market;
- To ensure you can comply with your legal responsibilities, especially the Statutory Directors Duties implemented on 1st October 2007 and 1st October 2008; and
- To understand the company’s business and its financial circumstances.
- Directors are responsible for the company carrying on its business and exercising its powers. Primarily a director’s responsibility is to the company, but it can also be to co-directors, employees and creditors to name a few.
Before becoming a director you should ask to see the following items:
- A copy of the company’s Memorandum and Articles of Association;
- Contact and biographical details of all the directors of the company, the Company Secretary, and any other key members of the management team, together with details of their day-to-day responsibilities;
- Details of the company’s shareholders, any subsidiaries; any parent company; any associated companies; and any joint ventures currently occurring or anticipated;
- Minutes of the last six Board Meetings;
- Details of any ongoing or potential litigation;
- Insurance policies in place including details of Directors & Officers’ insurance policies;
- A description of your intended role, with a run down of day-to-day responsibilities;
- A current business plan with present and future budgets (if available); and
- Financial reports and accounts for the previous financial year.
This information should enable you to make an informed decision as to whether to accept the directorship. However, your research shouldn’t end there. Once you have decided to become a director you should ensure you are aware of the following in relation to the company:
- Its suppliers / customers;
- Its main products/services;
- Its largest suppliers/ customers, and details of the business carried out with them over the last 3 years;
- Any recent news stories and reports relating to the company;
- Details of the company’s lawyers, bankers, accountants and any partners dealing with the company;
- Management accounts since the last accounts date;
- Risk management procedures and disaster plan; and
- Policies on health and safety, environmental, whistleblowing and discrimination, and charitable and fiscal donations.
Directors must also understand their legal obligations under the Companies Act 2006 (“The Act”), which introduced 7 statutory duties on directors including to act within their powers, to promote the success of the company, to exercise independent judgment, to exercise reasonable care, skill and diligence, to avoid conflicts of interest, not to accept benefits from third parties and to declare interests in proposed transactions with the company.
It is no longer acceptable for directors to defend their conduct by saying that they were not aware of the law. Directors can be held personally liable even if they are not involved in the day to day running of the company. In order to safeguard themselves, it is vital that directors ensure they have sufficient knowledge of the affairs of the company and that the correct reporting procedures are utilised. Ignorance will not shield directors from personal liability for breaching their duties under the Act.
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