Directors’ Duties & Legal Advice for Company Directors

A director is legally defined as a person “occupying the position of director”. This includes:

• Executive directors
• Non-executive directors (NEDs)
• Managing directors
• C-suite executives
• De facto and shadow directors

Once appointed, directors owe duties to the company, shareholders, other directors, creditors, and employees.

We advise on:

• Proper appointment procedures
• Reviewing articles of association
• Shareholder and investment agreement terms
• Companies House filings
• Drafting and negotiating Director Service Agreements (in conjunction with our Employment Team)

Proper structuring at the outset can prevent costly disputes later.

Upon appointment, directors assume statutory duties under the Companies Act 2006, and any breaches can result in personal legal and financial liabilities, fines, disqualification, or litigation.

The Seven General Duties of Directors

• Duty to Act Within Powers
  Directors must act in accordance with the company’s constitution and exercise powers only for proper purposes. Proper action must always be taken to adhere to these duties.
• Duty to Promote the Success of the Company
  Directors must act in good faith in a way most likely to promote the company’s success for the benefit of its members as a whole.
• Duty to Exercise Independent Judgment
  Directors must make independent decisions and not improperly delegate their authority.
• Duty to Exercise Reasonable Care, Skill and Diligence
  Directors must meet both an objective and subjective standard of competence, ensuring their decisions are well-judged.
• Duty to Avoid Conflicts of Interest
  Directors must not place themselves in situations where personal conflicts of interest could undermine company welfare without proper authorisation.
• Duty Not to Accept Benefits from Third Parties
  Directors must not accept inducements connected to their position.
• Duty to Declare Interests in Transactions
  Directors must disclose any direct or indirect interest in proposed company transactions.

Find out more about Director duties.

There is also an uncodified duty owed to creditors.

The “creditor duty” becomes relevant where insolvency is probable. Directors must prioritise creditor interests in circumstances of financial distress. Failing to focus on creditor interests during such time may result in severe consequences.

Failure to do so may result in:

• Personal liability
• Wrongful trading claims
• Director disqualification

Our Corporate and Insolvency and Restructuring Teams work closely together to provide support to directors during financially challenging periods.

Under section 168 of the Companies Act 2006, shareholders may take action to remove a director by ordinary resolution.

However, adherence to strict procedural and timing requirements is crucial.

Failure to comply can invalidate the removal.

We can assist with:

• Lawful removal procedures
• Reviewing constitutional documents
• Shareholder and investment agreement considerations
• Service agreement termination provisions
• Managing contentious disputes with our Commercial Litigation Team

We provide our services to both companies seeking removal and directors facing removal.

Strong governance not only reduces director liability but also protects business and shareholder value.

Directors are responsible for:

• Maintaining statutory books
• Filing accurate information at Companies House
• Recording board meeting minutes
• Passing shareholder resolutions correctly

Failure to comply with these legal requirements may constitute an offence and lead to fines.

Our Corporate solicitors assist with:

• Updating and reconstituting statutory books
• Companies House filings
• Drafting board minutes and written resolutions
• Advising on board and shareholder meeting procedures
• Corporate housekeeping ahead of investment or sale

Effective compliance remains crucial, particularly during comprehensive due diligence exercises.

Director service agreements regulate the relationship between the company and its directors.

We advise on:

• Drafting and negotiating Director Service Agreements
• Termination provisions
• Restrictive covenants
• Bonus and incentive agreements
• Exit strategy planning

Our Corporate and Employment Teams collaborate to protect directors and businesses, offering guidance and support.

When a company goes into liquidation, the director's role changes.

Directors are typically tasked with assisting the appointed liquidator by providing necessary information about the company's affairs.

Depending on the circumstances, directors might face personal liability for company debts if they are found to have acted improperly.

Directors of a company can resign; however, they should address their resignation by taking the following steps (some of which are legal requirements and others are good practice):

1. Review the company's articles of association and any applicable laws or regulations regarding director resignation procedures.
2. Notify board members of your intention to resign, typically by submitting a formal resignation letter.
3. Hold a board meeting to officially accept your resignation and record the decision in the meeting minutes.
4. Complete any necessary paperwork or filings required by relevant authorities, such as notifying Companies House.
5. Transfer any company assets or pass on any responsibilities as needed and ensure a smooth transition for your successor.
6. Fulfil any outstanding obligations or duties you have as a director before your resignation takes effect.
7. Update relevant parties, such as the bank, about your resignation.

It's recommended that you seek legal advice to ensure compliance with all legal requirements and to protect your interests during the resignation process.

A company secretary is different to a director.

A company secretary is responsible for administrative tasks and ensuring compliance with legal and regulatory requirements, while a director is involved in managing the company's affairs, making decisions, and has legal responsibilities in relation to the company's actions.

To add a director to a company, follow these steps:

1. Check the company's articles of association, any shareholders’ agreement and any relevant laws or regulations regarding the appointment of directors to ensure compliance with the procedures outlined.
2. Hold a board meeting to discuss and approve the appointment of the new director. Ensure that the meeting is properly convened and minuted according to the company's procedures.
3. Obtain the consent of the individual you wish to appoint as a director. They must be willing to accept the responsibilities and duties associated with the role in the organisation.
4. Complete and file the necessary paperwork with the appropriate authorities. For example, this will include submitting a Companies House Form.
5. Update the company's records to reflect the appointment of the new director, including updating the company's register of directors and notifying relevant stakeholders (such as the bank).
6. Provide the new director with any necessary information, documentation, and training to ensure they understand their roles, responsibilities, and obligations as a director of the company.
7. Ensure that the new director is included in future board meetings and decision-making processes.

Myerson Solicitors' corporate lawyers have experience assisting the transition of a new director into a business.

It is crucial to get legal advice to ensure the newly appointed director is advised correctly.

In the UK, private companies limited by shares must have a minimum of one director, while public limited companies (PLCs) must have a minimum of two directors.

There is no maximum limit on the number of directors a company can have; however, it's important to consider practicality and efficiency when appointing multiple directors.

Again, the constitution of the company (the articles of association or a shareholders’ agreement) should be reviewed as minimum or maximum numbers may be set out.

A director can be made personally liable when they breach their legal duties/responsibilities, engage in wrongful trading or commit fraud.

Furthermore, personal liability may also arise in circumstances of corporate manslaughter, when a director fails to prevent the company from trading while insolvent or when they act beyond their authority.

The legal responsibility for directors lasts as long as they hold their position as directors and even extends beyond that, particularly in cases of breaches or misconduct during their tenure.

Any party with a legal interest in the affairs of the company, such as shareholders, creditors, or regulatory authorities, may be able to pursue a director for breach of duties or misconduct.

Additionally, liquidators or administrators appointed to wind up or rescue the company may also have the authority to pursue legal action against directors for the benefit of creditors.