Becoming a company director – pause for thought

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Many people associate some prestige with being a company director or think that it looks good on a business card. However, it is fundamental for anyone asked to accept an appointment as a director that they understand the duties, responsibilities, risks and liabilities involved.

The Companies Act sets out clear lines of accountability for directors who breach any of their duties as directors. The standards required of directors are high and the area of law is complex. A director who takes his or her responsibilities as a director too lightly risks breaching their duties and faces potential liability and penalties. If directors breach their duties, they may be held personally liable.

Before accepting an appointment you should:

  • understand the company’s business and what it does
  • understand the financial position of the company
  • understand the ownership and control of the company
  • consider any conflicts of interest
  • understand how the board operates, who else is on the board.
  • consider the level of remuneration in relation to the risks and time involved.
  • be prepared to not accept the appointment if you do not have the expertise to do it properly.

Once appointed, a director should:

  • insist on proper meetings with written minutes
  • be prepared to say no if you disagree with a proposal or if you think your duties/obligations will be compromised
  • be involved in all decisions.

Directors have a responsibility to be well informed and to participate in decisions. It is not acceptable that a director merely sits in the background and signs papers when asked to do so by the other directors or the company’s shareholders. A director cannot claim to be a “silent director” with no responsibility for the company. Not knowing what is going on is not a defence.

If you:

  • are a director, or
  • you want to appoint a director to your own company, or
  • you have been invited to become a director

and you are unsure of your duties, responsibilities and obligations, please contact our business law team and we’ll be happy to work through those with you.