In the first of a two-part series, we look at duties placed upon directors of a limited company
Many companies registered with Companies House are small companies that start as a one-director company and remain so until the demise of either the director or the company itself.
In many cases directors have no understanding as to what being a director actually entails or what the consequences are of getting it wrong. Many directors look upon the company as being an extension of their self employment.
The main point is that the company is a separate legal entity. It has its own rights and can take its own actions sometimes against its own directors.
One of the points to consider when starting a new business and choosing the trading medium is the appointment of directors, and the duties placed on them.
Companies Act 2006 Part 10 Chapter 1 defines the rule governing the appointment of a company director:
There are three main elements to the directors’ duties:
Duties stated in the act include:
The directors have other duties in areas such as health and safety, bribery law, employment law and tax, etc.
Requirement to return any property wrongly taken from the company or to pay damages
Where the directors are held to be in breach, they can be required to return any property wrongly taken from the company or to pay damages to the company.
Under the Companies Act, any shareholder has the right to apply for permission to bring proceedings against a director in respect of any alleged negligence, breach of duty or breach of trust. The court will consider if the applicant was acting in good faith, whether the shareholders had authorised or ratified the breach being complained of and whether the conduct of the director concerned was consistent with the requirements set up in the Companies Act.
Director’s personal liability in respect of debts and losses of their company
Under a limited number of circumstances directors can be made personally liable for debts which they allow their company to run up. Some of the circumstances in which a director can be held personally liable are:
In the second and concluding part of this series, we will consider the process and implications of disqualification as a director.