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The Director's Rulebook

Posted on Apr 24, 2012 by Dominic Dunnett  | 0 Comments

By Dominic Dunnett

When it comes to managing your startup, you'll no doubt enjoy the freedom to do what you want – even if you don’t have the time available to fit it all in. But when it comes to making key decisions, what are you required to do by law as a director? Here are our top ten duties and responsibilities for directors to be aware of.

1. Act within your powers

  • You are expected to, at all times, act in accordance with the company’s constitution (also known as the Articles) and to only exercise your powers for their proper purpose.

2.Promote the success of the Company

  • This seems obvious, but the director of a startup is required to act in a way he considers, in good faith, would be most likely to promote the success of the Company within the limits of responsible business behaviour.

3.Exercise independent judgement

  • A director must always exercise independent judgement on the company's behalf.  This doesn’t prevent you from relying on professional advice, as long as you exercise independent judgement in deciding whether or not to follow that advice!

4.Exercise reasonable care, skill and diligence

  • You should not take on a directorship unless you are sufficiently qualified or experienced to do the job. It is also important to remember, if you have a special skill or previous experience – as a qualified accountant for example – you will also be expected to meet higher standards.

5.Avoid conflicts of interest

  • When making corporate decisions, a startup director’s direct interest can’t conflict with the interests of the company as a whole. In other words, you are prohibited from competing directly with the company for any particular commercial opportunity. A conflict of interest would arise if you tried to use information belonging to the company for your own purposes.

6.Don't accept benefits from third parties

  • No bribes or sneaky brown envelopes that would result in you receiving a personal benefit because of your position in the company and/or because of anything you may or may not do as a result. This does not apply however, if the benefit can’t reasonably be regarded as likely produce a conflict of interest (for more information see the Bribery Act). But, all things considered, it might just be safer to turn down that corporate hospitality at the Monaco Grand Prix…

7.Declare any interest in a proposed transaction or arrangement

  • This applies to the vast majority of startup investment work we do here at MBM. Unless your company Articlesstate otherwise, you are required only to declare a particular interest in any company transaction to the Board or to your co-founders. This can either be declared in person at the board meeting itself, or alternatively can be sent to each director by email or post.

8.Duty to deliver accounts

  • Keeping track of the company finances is a legal requirement for any startup. In addition, failure to file a company’s Annual Accounts or Annual Returns within the prescribed periods warrants a slap on the wrist from HMRC (for more information see the ‘late filing penalties’ section of the HMRC website). 

9. Duty of confidentiality

  • Directors amass a significant amount of sensitive information relating to a startup. For example, a director is entitled to inspect and take copies of the records of the company (including minutes of meetings). To avoid any difficulties, it is good practice for founders to agree in advance with any shareholder what categories of information it can receive from the director(s).

10. Duty not to make unauthorised profits

  • There is a broad principle that any profit acquired by a director through their directorship must be accounted for to the company. You may be able to keep the profit if you fully disclose the details, and the retention of the profit has been sanctioned by the company in a general meeting.

In short, when deciding whether or not to become a director, you should be aware of the responsibilities that the role entails. The fact that you may also be the only shareholder in the company doesn’t change the fact that the law forces you to toe the line. As is the case in many startups, where one individual is both a director and a shareholder, it is important to bear in mind the distinction between the roles. Remember - when you are wearing your director’s hat, you are there to represent the interests of the company, not just one particular shareholder.

@domdunnett

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