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Role Of A Director Essay

2777 words - 12 pages

The role of a director of a company carries with it much legal responsibility

This is the topic that will be discussed in this essay. It will begin with a definition of what a director is, followed by the relevant legislation. I will go on to discuss the different types of directors in a company followed by the main duties directors owe to a company. I have taken a look then at the powers directors have in a company and ended this topic with the personal and criminal accountability directors may experience if they don’t exercise their powers in good faith and in the interests of the company.

Section 2(1) of the Companies Act 1963 defines ‘director’ as “including any person occupying ...view middle of the document...

They can only be appointed with the agreement of a majority of the directors.
DeFacto Director is a person who has not been validly appointed or who is disqualified but whom in effect occupies the position of and acts as if they were, a director.
Executive Directors are directors of a company who are involved in the day to day running of the company. They can fall under many titles such as, Managing Director, Finance Director or Marketing Director. Non Executive Directors are not involved in the day to day running of the company and are appointed from outside the company. They can bring an independent voice and perspective to the board. There is no legal obligation for a company to appoint non executive directors however companies that are listed on the stock exchange are required to comply with the codes of corporate governance best practice which do require the presence of non executives’ directors on the board. (Callanan 2007)

Directors owe three main duties to a company these are fiduciary duties, the duty of skill and care and statutory duties. A fiduciary duty is a duty to act in the best interests of another person. There is a huge degree of accountability because of the finances that are under the control of a director. Directors owe a fiduciary duty to the shareholders of their company. The following are specific duties that exist. Directors must act in good faith and in the best interests in the company. They must display the utmost good faith towards the company in their dealings with it or on its behalf. Directors must not abuse their powers and they must also exercise their powers in what they honestly believe to be the best interests of the company. (lit.ie) They are not allowed to make an undisclosed profit from their position as directors and must account for any profit which they secretly derived from their position as director. In Re Lee Behrens and Co (1932) a company paid a pension to the widow of a former director. When the company went into liquidation, the widow claimed as a creditor for the capital value of the pension. The court held that the gift was “ultra vires as there was no benefit to the company (Murphy 2004). Another specific duty that exists, are that directors must exercise their powers for the purposes for which they were given. The directors must exercise their powers for the purpose for which they were given to them and not for some other purpose. The powers of the director are set out in the Articles. It is for the courts to interpret the Articles in order to determine the purpose for which the power was conferred. If a director abuses its powers for an improper purpose, to make a personal profit at the company’s expense, they will not have acted “bona fide” and will have broken this duty. However if the director has acted honestly in what they believe to be the best interests of the company they may still be liable if they do not use their powers for the purpose for which they...

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