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The role of a director

If the company can be described in terms of a car, then the director is the driver. 

It is the role of the director to run the business, to interact with the business community and in essence, to seek to make a profit, which is then either reinvested into the business (i.e. to fund the growth of the business) or if the cash is surplus, to return the cash to the shareholders (which is typically done by declaring and paying a “dividend”).

Companies can have more than one director, but the role of the director is always the same, primarily to act in the best interests of and take steps to promote the success of the company.

Given the importance of the role, the law imposes a number of different duties on directors.  These are contained in a mixture of common law duties that have evolved over many years of case law (i.e. such as not to prefer the directors own interests over those of the company and shareholders) as well as now a number of statutory duties that have been codified in the Companies Act 2006.

These statutory duties include:

  • a duty to act in accordance with the company’s constitution, and to use powers only for the purposes for which they were conferred;
  • a duty to promote the success of the company for the benefit of its members;
  • a duty to exercise independent judgment;
  • a duty to exercise reasonable care, skill and diligence
  • a duty to avoid conflicts of interest; and
  • a duty not to accept benefits from third parties.

If a company begins to trade poorly such that it starts to look likely that the company will not be able to meet all of its debts as and when they fall due, then the law provides that a new duty arises in favour of the company’s creditors and the directors must not prefer one creditor over another for instance and certainly, should take specialist legal advice before continuing to trade as in such a case, continuing to trade could increase the potential loss of creditors if the company fails. 

If directors continue to trade in such circumstances, they may risk being personally liable to creditors, meaning that they may need to pay back certain debts of the company personally.

If the company starts to look like this will be an issue, legal advice should be sought immediately.

How often do the directors have to meet?

Where the company has only one director, the director merely needs to record their decisions in writing in order for that decision to be deemed to be a resolution of the board.  Thus, a sole director does not need necessarily to hold an official board meeting.

However, where a company has two or more directors, a “board” exists and thus the board needs to meet as and when required.

How often the board needs to meet is a matter to be determined by each particular company.  Some boards meet only once a year, most meet at least once a quarter whilst boards of larger companies may be required to meet once a month.

Each company will need to determine how best to administer its own affairs and there is no right or wrong answer – other than the board needs to meet so often as the directors deem necessary in order to discharge their various statutory and common law duties to the company, its shareholders and creditors.

How often do the shareholders have to meet?

Where the company only has one shareholder (which will often be the case at the start of the growth cycle of most designer companies) there is no need for a shareholders’ meeting as the sole shareholder merely needs to record a decision in writing for it to be deemed passed at a meeting of the shareholders.

However, where there are more than one shareholders, the shareholders may need to meet, depending upon how the company has been set up.

Whilst smaller companies can dispense with the requirement, most larger companies need to hold at least one shareholders’ meeting a year, called the “Annual General Meeting” or the “AGM” at which a number of things happen, such as the board is re-elected, certain resolutions are passed and the audited accounts of the company are laid before the shareholders.

If the company is undertaking activities which need to be approved by the shareholders at different times of the year, the board may call an “extra ordinary general meeting” or “EGM” which will convene a meeting of the shareholders at which the shareholders will be asked to consider certain matters as set out in the notice of meeting.

For more information about Olswang go to http://www.olswang.com/main.asp?sid=193

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