Company Directors’ duties and obligations
All company types must have a company secretary and a minimum of one director over the age of 18. One director is required to be permanently resident in the EU. The secretary can be one of the directors of the company. A corporate body may act as the Company Secretary.
What is a company director
A company director is a person duly appointed by the members of the company to manage the company.
A company is owned by its members or shareholders. Directors are usually appointed by the members of the company but can be appointed by the other directors . The primary function of the directors is to manage the company on behalf of the members. A company director must be familiar with the legal responsibilities and obligations attached to the position. One company director may also act as the company secretary.
What Qualifications are required to become a company director
No formal qualifications are required to become a company director.
A director is not required to be a member or shareholder of the company.
You may not act as company director if you are auditors of the company, undischarged bankrupts and any person disqualified by a Court from acting as a company director.
Company directors’ duties and obligations
The Company directors’ responsibilities are wide and diverse. As the vast majority of companies are private companies, there are a substantial number of companies of which the directors and members are one and the same.
Under such circumstances, the distinction between the company’s property and the director/member’s own property can be a matter of some confusion with the result that the directors treat company property as though it was their own. A company director stands in a special relationship to the company of which they are an officer. This special position is known as a ‘fiduciary position’ and the director is known as a ‘fiduciary’. A fiduciary is required to act in a manner which is legally becoming of their office and which places the interests of the company ahead of their own.
A director’s duties are usually owed in the first instance to the company and not to the members, creditors or employees of the company. Where, however, a director expressly undertakes certain obligations to shareholders, he may stand in a fiduciary relationship to them and owe them fiduciary duties. This may particularly be the case in a small private company where shareholders often look to the directors for advice. A director is also obliged to have regard to the interests of the company’s employees. However, this duty may not be enforced by the employees themselves and is instead owed to the company.
Directors’ statutory duties
A director, as an officer of a company, is under a duty to comply with his obligations under the Companies Act 2014 and to ensure that the requirements of the Companies Act are complied with by the company. A director is in breach of this duty where he authorises or permits a default to take place. A director is presumed to have permitted a default by the company unless the director can establish that he took all reasonable steps to prevent it or due to circumstances being beyond their control to prevent the default.
Duty to maintain proper books of account
Every company is required to maintain proper books of account. The directors of the company are required to ensure that this requirement is complied with. It is a criminal offence for any director of the company to fail to take all reasonable steps to ensure compliance with this requirement.
Duty to prepare annual accounts- financial statements
Companies are required to prepare accounts on an annual basis. The annual accounts are prepared from the information contained in the company’s books of account and other relevant information. The accounts are required to give ‘a true and fair view of the company’s financial affairs.
By law every company must maintain certain registers and other documents. Company directors are responsible for ensuring that the company complies with their obligations . Directors are responsible for ensuring that these records are maintained, updated as appropriate and made available.
Directors are responsible for ensuring that the following registers and other documentation are maintained by the company:
- Register of members
- Register of directors and secretaries
- Register of directors’ and secretary’s interests
- Register of debenture holders
- Minute books
- Directors’ service contracts
- Contracts to purchase own shares
- Register of interests of persons in its shares (public limited companies only)
Duty to file certain documents with the Registrar of Companies
Company directors are legally obliged to ensure that certain documents are filed with the Registrar of Companies. Some are required to be filed by every company e.g. the annual return while others are required to be filed only in certain circumstances e.g. on the death of a director.
Duty to convene general meetings of the company
Company law provides for two types of meeting of a company, an Annual General Meeting (AGM) and an Extraordinary General Meeting(EGM). General meetings of the company are meetings of the members and the directors where certain company business is conducted.
Annual General Meeting
Every company is required to hold an annual general meeting (AGM) yearly. The directors are required to present audited financial statements to the members at each AGM.
Company directors’ powers
A company’s directors act on behalf of the company. They only have powers to do what the company itself is legally entitled to do. The powers that directors have are those which have been conferred upon them by the company, usually via the company’s articles of association. These powers are formally proposed by resolution at a board meeting, normally decided by a majority of votes.
Change or resignation of directors
Should there be a change in directors of a company or a change of residential address for a director it is required that the Registrar of Companies be notified within 28 days of the change. Documents notifying the Registrar of a change are required to be signed by a current director. A director cannot resign from a company without the knowledge of the other directors.
Directors’ common law duties
Directors’ common law duties can be summarised into three principles:
- Directors must exercise their powers in good faith and in the interests of the company as a whole. Directors must not abuse their powers. They must exercise their powers in what they honestly believe to be the interests of the company as a whole or the members as a whole rather than in the interests of a particular member or members.
- Directors are not allowed to make an undisclosed profit from their position as directors and must account for any profit which they derive from their position as director. It is not automatically a breach of a director’s duties to be involved in a business which competes with the company of which they are a director. However, where a director has a contract of employment or service contract with the company, it may be in breach of their duties of fidelity and loyalty to the company to do so.
- Directors are obliged to carry out their functions with due care, skill and diligence. However, a director need not exhibit in the performance of his or her duties a greater degree of skill than may reasonably be expected from a person of his or her knowledge and experience.
A director is, in general, justified in delegating duties to other officials of the company (e.g. the company’s management) where such duties may properly be left to such officials, having regard to the articles of association of the company and the nature of its business. A director, while not bound to give continuous attention to the affairs of the company, should attend meetings in circumstances where he is reasonably able to do so.
Duty of disclosure
Directors are required to disclose the following:
- Certain personal information in the register of directors. The information required is name, date of birth, residential address, nationality, occupation and details of any other directorships
- Interests in shares of the company or related companies in the register of directors’ interests
- Payments to be made to them in connection with share transfers
- Directors’ service contracts with the company must be made available for inspection by any member of the company
- Where a director has in any way an interest in a contract or proposed contract with the company, they are required to declare the nature of that interest at a meeting of the directors of the company. For the purposes of this requirement, a general notice given to the other directors is deemed to be a sufficient declaration of that interest
Directors’ duties regarding transactions
Directors have certain responsibilities and obligations where they enter into transactions with the company of which they are a director. Where a director of a company or its holding company (i.e. a company owning in excess of 50% of the shares of the company in question) or a person connected with a director acquires an asset from, or sells an asset to, the company and the value of that asset exceeds:
- 10% of the company’s net assets as determined by reference to the accounts prepared and laid before the AGM in respect of the last preceding financial year in respect of which accounts were so laid – or the called up share capital where no accounts have been prepared and laid
The arrangement must first be approved by resolution of the company in a general meeting – this requirement does not apply where the amount in question does not exceed €1,270.