For any limited company in England and Wales, the activities of directors are governed by legislative restrictions (most popularly the Companies Act 2006, the company’s articles of association and any agreement between shareholders.
The articles of association form a contract between the company’s shareholders and the legal entity that is the company, and within those articles the powers and duties of directors are further explained and authorised.
A director has statutory powers to bind a company to certain transactions subject to the statutory and contractual requirements that s/he must act within their powers.
A director should and must act in accordance with the company’s objectives, whether set out in the company’s articles of association, as agreed at board meetings or as set out in a shareholders agreement.
Where a company is a quasi-partnership then there should be an understanding between directors what the company’s objectives are and what all directors and shareholders’ purpose in setting up and continuing to run the business, be that in the short or long-term.
- this could be an objective to grow the business to a certain size to enable a sale or (as with a lot of family companies); or
- it may be to mitigate risk and ensure a consistent trading business exists to support the family both now and in the future.
A director is governed by these understandings (whether set out in a shareholders agreement or agreed informally) in addition to the company’s articles of association and the statutory restrictions imposed on directors and their dealings with, or on behalf of, the company.
Management by the board
For small companies, the directors of the company may comprise the entire workforce.
However, for a majority of companies the directors will usually have specific roles which they will in turn segregate and delegate specific tasks to their staff – for example
- as finance director they may have a cashier, accounts clerk and other similar staff; or
- for smaller companies, they may rely on the company’s accountant; or
- the operations director, sales director and even the managing director may run their part of the business in a similar way.
For larger companies these roles are more bespoke to the company’s requirements and indeed for large companies these roles may be carried out by group companies, with each company set up to deal with a specific part of the main business or a function (the most common example being a service company supplying employees to the group companies).
Alternatively, companies may be set-up for specific purposes (often referred to as special purpose vehicles, or SPVs) – the most common example of which are construction companies where an SPV is set-up to deal with specific construction projects. This approach may insulate the group companies from difficulties that may be faced on such individual projects which may, ultimately, lead to insolvency.
Regardless of the set-up, for most companies its management exist to coordinate individual parts of the business which may be staffed by many employees, each reporting to their line managers who in turn (usually via a reporting chain) ultimately report to the director of that division, who in turn reports to the board at a board meeting.
There is no statutory requirement to have a meeting of directors. Additionally, in today’s world of electronic communications (and the Covid pandemic), meetings of directors may often occur without the individuals present in person.
- most importantly, however, is that where directors have a meeting (regardless of the forum) a record of the decisions made must be prepared and kept as part of the company’s records of the resolutions approved by the board;
- this record, or board minute, will record any documents prepared, the submissions made by directors and the resolutions passed.
- the finance director may present a budget for the financial year ahead and this may be approved by directors, with or without amendment;
- alternatively, the sales director may present a list of targets or objectives for the coming year, with similar discussions as to whether and how this falls into the company strategy and complies with the underlying requirements of the company and its board of directors.
Throughout the year, reports on important matters may be presented to the board – for example dealing with liquidity issues, the need for funding or raising concerns on unpaid debts (where material to the company) or regular reports on whether the company is continuing to be profitable and adhere to budget.
The board of directors have a duty to plan or provide for any risks and, in adherence to their statutory duties to shareholders, directors must also ensure steps are taken to promote and possibly grow the company’s business where an opportunity is presented.
Individual directors are then empowered to take steps within their area of authority to implement the decision of the board.
Acting without authority of the board
Directors do have day-to-day responsibilities to make decisions on behalf of the company in accordance with their agreed role and powers under the company’s constitution (as described above). For a majority of such matters, board authority is not required.
However, where directors are not fulfilling a role that falls within the company’s day-to-day business and/or their dedicated role, or which is not implementing steps agreed by the board, then a director who takes steps without board authority is acting outside of his legal (and potentially contractual) powers.
When a director “goes rogue”, whether this is as a result of disagreements upon deadlock or this results from personality issues then the director is acting in breach of his/her fiduciary duties and can be personally liable for any losses arising as a result.
At Francis Wilks & Jones we have comprehensive experience of disputes or claims arising from the misuse, or alleged misuse, by a director of his/her position and can assist both the company and directors facing such charges.
Please call any member of our team for your expert consultation now. Alternatively email us with your enquiry and we will call you back at a time convenient for you.