When you hear special skills what do you think of? Heroes, avengers and special agents or just what people are good at? I bet you don’t think of company law and directors… Some however may want or need to know if they require any special skills or qualifications to become a director.
When setting up a business or becoming a board member you won’t need to know how to fly, turn to fire, break down walls or turn things to ice. That’s right you won’t need any special powers or skills. Although you may wish that you had certain powers to help you deal with people. In fact, there is no legal requirement for any qualifications except in certain specific businesses (e.g. investment companies). Other than there is an obligation to have at least one natural person serving as a director within each company.
Almost anyone can be a director, including both individuals and other limited companies. There are exceptions and these include the company’s auditor, those disqualified from acting as a director by the courts, undischarged bankrupts (permission from the court is required) and anyone under the age of 16. Beware though as an under-age individual can still acquire liabilities if they act as a director or as a shadow director.
Once you have your special skill set the next important factor is to know what responsibilities you have to the shareholders. In the main, there are certain legal duties with which a director must comply; these duties are owed to the company rather than the shareholders.
The Companies Act 2006 introduced statutory directors’ duties. Although these are similar to the previous duties it is worth taking legal advice to ensure none of your current practices, policies and procedures could lead to breaches. Make sure you #GetCompliant.
So what are the duties owed? Well you will be glad to hear they don’t include dressing up in a cape and boots to save the world… but they do include:
- To promote the long-term success of the company. Not the interests of, say, the majority shareholder.
- To act within the company’s constitution and powers. In other words only do things the company is authorised to do, and that the director has power to do. Again rather than the shareholders.
- To exercise independent judgement. That’s right think for yourself – don’t take instructions from another person or, for that matter, a dominant director, on how to run the company.
- To exercise reasonable skill, care and diligence. Obviously.
- To avoid ‘situational’ conflicts of interest. A situation where the interests of an individual do or may conflict, directly or indirectly, with the interests of the company. This would also cover a director exploiting any of the company’s property, information or opportunities.
- Not to accept benefits from third parties especially when offered because of director status or their actions / non-action.
- To declare any direct or indirect personal interest in any proposed transaction or arrangement to be entered into by the company (a ‘transactional’ conflict) to other members of the board. This can be done at either a board meeting or in writing.
Directors often ask what is success and how is it measured? It doesn’t mean how many ‘villains’ have been slayed in their attempt to take over the world, or indeed how quickly you uncover their evil master plan! But to help, the government has said that, for a trading company, ‘success’ will usually mean ‘long-term increase in value’. What constitutes success will be for the directors to decide for their particular company. As such if there is an action against a director for breach of duty the Courts should be reluctant to substitute their judgement for that of the directors.
Included in the Companies Act there is a non-exhaustive list of factors to assist directors in showing that they are promoting the success of the company. These include the:
- likely consequences of any decision in the long term;
- interests of the company’s employees;
- need to foster the company’s business relationships with suppliers, customers and others;
- impact of the company’s operations on the community and the environment;
- desirability of the company maintaining a reputation for high standards of business conduct; and
- need to act fairly between members of the company.
The factors to take into account, the weight to be given and ultimate actions must be exercised with due skill, care and diligence. Well, you never see the hero’s going round ‘blasting’ anything and everything with no due regard! Further, directors ought to consider whether additional or alternative factors should be taken into account depending on the company’s circumstances.
Although there are these rules and regulations to control what directors can and can’t do, remember that the shareholders can relieve directors of many of their duties. This is done by authorising directors to carry out certain acts, which would otherwise be a breach, in the articles of association.
Finally remember you have responsibility to others as well; as you must promote the long-term success of the company as a whole, this involves taking into account more than just the interests of the current shareholders. As well as the shareholders, you must consider the interests of other ‘stakeholders’ such as creditors and employees.
You also have a responsibility for ensuring that the company complies with all relevant legislation. Therefore, if you are in any doubt regarding compliance you should get in touch with a lawyer. It’s not worth getting it wrong, as the consequences are too high.
Get in touch if you want more information or a risk audit to ensure you are #Compliant. Go on #GetProactive and #GetLawSavvy.
