What are the legal responsibilities of a director?

Every legal company must have at least one director in charge. A director, or directors, are elected or appointed to manage the affairs of a business.

If you are setting up a company, you will automatically become the director, until such a time as you declare someone else to be in charge and record it on the Companies Register.

There are obligations that need to be fulfilled as a director of a company. The following briefly describes the roles and responsibilities of this person (or persons).

1. To act in good faith

A director is legally obligated, by way of section 131 of the Companies Act 1993, to "act in good faith and [to do] what the director believes to be in the best interests of the company".

You must comply with the Companies Act and not allow or agree to activity that would cause substantial loss to the company or company's creditors. You must, to the best of your ability, ensure that the company can pay all of its debts and to exercise your power as director in the right way.

2. To be capable

To be a director of a company is a telling sign that you have the skills and knowledge to do so. You may be held personally responsible and be liable for the decisions you make as director, so it is essential that you understand the legal framework within which your company operates.

You can obtain professional or legal advice in order to gain the knowledge you need to perform best as a director, but only if you do so in good faith.

3. To keep meticulous records

Meetings with shareholders are required by the Companies Act. Often, these are done yearly, but can be more frequent. In addition to this, accurate minutes of these meetings need to be kept on record for 7 years.

Additional records that need to be held include:

  • A constitution (if you have one)
  • Certificates given by the director
  • Any communication to shareholders over the last 7 years
  • The share register
  • All accounting records
  • A director interests register

As a director, you are in a governance role, not a managerial one. Every company requires a director with a unique set of skills and experience in order to be governed correctly. You need to know everything about a company in order to act in its best interests.

To ensure you are adhering to all of the legal responsibilities of a director, do consult available government handbooks on the matter or get in touch with a knowledgeable and trusted legal advisor.

Information provided on this website is of a general nature only and not legal advice. Please visit our disclaimer for further information.