Directors' duties and how decision making takes place is vital for any director to properly understand. Otherwise claims may follow - some of which could be personal money claims.
Limited liability companies have many benefits, one of the main being that directors and shareholders are generally only personally liable up to the value of their shareholding in the company.
However, the privilege of trading under limited liability comes with certain responsibilities. Directors are under duties to the company, its shareholders and its creditors. These duties permeate throughout all of the director’s actions and decision-making, and apply not only to registered directors, but to a variety of people who may act as directors.
Directors will be faced with numerous decisions during the course of their directorship.
The power given to directors to make decisions derive from
- the company’s Articles of Association;
- through any service level agreement the company and the director may have entered into; and
- through various provisions of company legislation.
For more detail on what decisions directors can make, read our pages on directors powers and responsibilities.
Directors fiduciary duties
Directors are subject to many duties as directors. These duties are set out under company legislation and insolvency legislation, or have arisen by way of common law over the years. Directors duties are in place in order to ensure that directors don’t abuse the privilege of limited liability, and to protect the company, those who deal with the company, and the general public.
For full details of these duties, read our pages on
Who is classed as a director?
It isn’t necessary for a director to be registered at Companies House to be considered a director. Other people may act as a director and if they do, then they bear the same responsibilities and duties as a registered director. This can be a surprise to some who might act as a directors but believe that they have no legislative responsibilities because they are not registered as such. However, the personal liability potential, and the potential to be disqualified as a company director is the same for shadow and de facto directors as for registered directors.
Similarly, there is a general misconception that non-executive directors have less risk and responsibility than registered directors who manage the company on a day to day basis. This is not the case. Non-executive directors bear the same duties and responsibilities as registered directors and can be held accountable in the same way. They can also be disqualified as acting as a director.
If a director has been found to be in breach of their duties, they may be subject to a claim against them, depending on the type of misconduct. The consequences and the ramifications for directors can be severe, and they may bear personal financial liability for the misconduct as appropriate. This can mean significant financial compensation will be requested of that director.
The burden of directors’ duties can be particularly worrying during the COVID crisis when companies face an unprecedented level of unpredictability over the future of their company.
We set out some practical tips on directors’ duties during this period, and the changes to legislation brought about in response to this crisis, to provide some comfort for directors.
Directors duties are vital for protecting a company and its creditors, and the public. Breach of these duties can have severe ramifications for directors, and cannot to be taken lightly. If you have any concerns regarding your company or your own personal position, then speak to one of our expert team today. The team at Francis Wilks & Jones are experts in this area and can talk you through all the issues.
At Francis Wilks & Jones we have many years of assisting directors, shareholders and SMEs (as well as some PLCs) with regard to all corporate governance and commercial matters. The most common areas for you to be concerned with are likely to be the following:
- what decisions can directors make?
- directors’ fiduciary duties;
- shadow / de facto directors;
- non-fiduciary/public interest duties;
- non-executive directors risk;
- personal liability of directors;
- decision-making during Covid-19.
At Francis Wilks & Jones you will always speak to someone at a senior level who will respond to any query you have immediately. Please call any member of our team for your consultation now and we can help. Alternatively email us with your enquiry or complete a contact form and we will call you back at a time convenient to you.