There are a lot of responsibilities that come with becoming a Director of a company.
For those who are not familiar with the role, the following are the potential penalties for not carrying out your duties in accordance with company law:
- Personal liability for the debts of the Company;
- Disqualification as a Director.
What should I consider before taking up the role of a Company Director?
The Companies Act 2014 recently came into being and it states quite clearly the duties of a Director and the potential penalties for not having regard to those duties. First and foremost a Director has a duty to the company and also should have regard to the interest of its employees and its members. A Director has what is known as fiduciary duties which are loyalty duties to a company. These are such things as:-
- Act in good faith in what a Director considers to be in the best interest of the company;
- Act honestly and responsibly;
- Act in accordance with the company’s constitution i.e. its rules;
- Not use the company’s property information or opportunities for his own gain unless it is specifically allowed for in the company’s rules or the members i.e. shareholders have approved same;
- Not to agree to restrict the power of any Director unless it is allowed for in the company’s rules or it is approved by the members;
- Not to engage in any activities that would lead to the Director having a conflict of interest between his own personal interests and the interests of the company;
- Exercise his duties with the care, skill and diligence that would be expected of a reasonable person having both the knowledge and experience of a person expected in the same position as a Director and having the knowledge and experience that the Director actually has.
As stated a Director must act in the best interest of the company but if a Director is appointed on foot of a shareholder’s agreement or under the company’s constitution then the Director may have regard to the particular interest of a member over and above all other members.
It is also important as a Director to note that in a position where a company loans money to a Director, it is assumed such a loan is repayable on demand and bears interest. Where a Director loans money to a company and such a loan is not in writing then such a loan bears no interest or security rights and is subordinated to all other indebtedness of the company.
The new Companies Act also allows for the payment of Director’s expenses incurred in the carrying out of his duties.