What are the board of directors' responsibilities?

5 min read
Feb 15, 2023 10:53:39 AM

As a company director, you are responsible for your organisation's strategic direction. This includes taking responsibility for all major decisions your board makes and ensuring that your company follows all legal requirements and regulations in your area and field.

Company directors hold a seat on the board of their company. While there are different kinds of directors within businesses, this remains a constant and vital facet of their role.

Acting as a company director comes with a lot of responsibilities. For example, you may be personally liable for your company's legal mistakes. You should make sure to be aware of your legal rights and responsibilities.

What is a company director?

Your legal rights and responsibilities as a company director come from you being an official office-holder within your organisation's structure.

You are legally responsible for your organisation's business decisions and outcomes as company director and can be held accountable. All smart directors have D&O liability insurance for this reason, as it helps protect them in the event that business goes awry. If you are sued by someone claiming to be wronged by your business – such as an employee, customer, shareholder or another party – your insurance will (should!) protect you.

In general, boards nominate their company directors through an official process. Following the nomination, directors are registered with the organisation's office.

Most companies should have at least two company directors. They are responsible for managing the organisation's affairs. You do not necessarily have to have formal qualifications to become a company director, but it may help you feel secure and capable in your new position.

Auditors, people who are bankrupt and those disqualified by court order are ineligible to serve as company directors.

When it comes to company directors, executive and non-executive directors are the same for legal and responsibility purposes.

Usually, shareholders will hold a general meeting to appoint directors to the company Board.

Board director using a laptop

What purpose do directors serve in their companies?

Directors are the decision makers for their companies. They keep their organisations in line with legal guidance and make sure they are operating in compliance with the regulation.

It is required that all companies maintain accurate and honest books and records. These should:

  1. Record and explain company transactions
  2. Allow for the company's financial position to be determined at any time
  3. Verify that the balance sheet and the profit and loss accounts are in compliance with the Companies Act
  4. Allow for quick and accurate auditing of company accounts

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What is a director's role?

Company boards are responsible for overseeing their company's operations. They must make strategic decisions, maintain smooth sailing for the business financially and keep in line with statutory requirements.

Directors work together during board meetings to fulfil these duties by exercising their rights and responsibilities to their organisation. Certain directors and committees may have specified roles to play, but all are responsible as a group when it comes to the legality of their decisions and their results.

How does an executive director's role differ?

An executive director is responsible for the usual workload of a company director. In addition to this, they are also company employees, trusted to take charge of a certain area of the business (such as a sales director, for example). Executive directors oversee their company's daily operations.

What are non-executive directors?

Non-executive directors are not company employees. They provide an outside perspective independent of board dynamics yet advises the board. Often, they offer particular experience and expertise on certain topics that are relevant to the company's operations, such as cybersecurity or finance.

They attend board meetings just like executive directors. They equally have the same duties and responsibilities as executive directors when it comes to legal requirements and implications. Moreover, their independent perspective offers insight and guidance on the company's strategy, ethics and integrity.

What is a company director's duty?

Technically, anyone registered at the company registration office as a director of the company is a company director. This makes them a member of the board of directors.

Directors hold one of the most influential roles in a business. They can make or break their organisation's success. It is important to choose wisely when selecting a director and make sure that the candidate decided upon shares the company's goals, drive and vision.

Ultimately, the company director is responsible for managing the business on behalf of its shareholders.

Are there other types of directors?

The short answer is yes! For example, statutory directors are responsible for the legal decision of the company, acting on the organisation's behalf. If someone is appointed to the board of directors, that makes them a statutory director.

The CEO, aka managing director, implements the board's strategy in the business.

Nominee directors, shadow directors and alternate directors further enhance business operations.

Of note, employee titles may contain the word' director,' but this does not mean that they are officially a statutory director. The 'director of communications,' for example, would only be a statutory director if they have been appointed by the Board.

What are a director's responsibilities?

All company directors should abide by their fiduciary duties and company responsibilities. They should always act in their company's best interest, keeping an eye on legal obligations.

All legal obligations are defined under the Companies Act for the jurisdiction.

As a company director, you should be comfortable reading financial reports and establishing a solid picture of the company's financial reality. You should be aware of and prepared for company risks and follow legal requirements. Directors must also model best practices, making certain that policies are maintained, that the company is accurately registered and that taxes have been filed.

What are the risks and benefits of becoming a director?

Most directors would say that the benefits outweigh the risks of the position. These include having a say in the management and direction of the company and getting to collaborate with other directors.

But you should always be aware of the risks, as well, before you assume the position. If you cannot uphold legal requirements and your lawful responsibilities, you could face fines and prison sentences. This includes seemingly innocuous acts such as failure to keep your financial records up to date.

If your company is unlimited, you could be held personally responsible for your company's debts.

As a company director, your authority comes from the organisation's articles of association. You should always consider how your decisions may pan out, including how they might impact employees, stakeholders and legal requirements.

Directors must also avoid conflicts of interest. They can do this by refusing to hold multiple directorship positions at the same time, keeping their investments clearly separate from areas in which the company operates, and not abusing insider knowledge for their own gain. Family members of the director should also avoid such perceived conflicts for legal safety reasons of the director.

In summary, a company director's duties are to:

  • maintain their place on the board
  • fulfil legal responsibility and show awareness of accountability for business decisions
  • follow fiduciary duties and act in the company's best interest under legal obligations
  • manage the business on behalf of its shareholders

Where to next?

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