Company Director Obligations
A company is owned by its share holders who in turn appoint directors to run the company on a day to day basis. In company law, a director is obliged and presumed to be aware of the laws that relate to the functions that the director is carrying out and the manner in which the company is operated.
The problem arises when one sits down to try and describe fully what it is that a Company Director’s obligations are.
A Directors obligation’s are consistently updated but from time to time, updates are more dramatic in the face of scandals such as Enron.
It is suffice to say that, the primary obligation a director has toward a company is a recognition that they are in position of trust. This fiduciary duty is effectively to carry out the duties associated with the office in a manner which places the interest of the company ahead of their own.
A director must also have regard to the interest of the shareholders, the employees and any other relevant interest holders such as creditors.
The type of duties which are most commonly associated with that of director are:
- Duty to maintain proper books of account – this is a requirement of Section 202 of the Companies Act of 1990.
- Duty to file certain documents with the Registrar of Companies. This would include documents such as the annual returns or a change of director.
- Duty to prepare annual accounts and financial statements. A company can be struck off the companies register if its annual returns are not filed and therefore it is required for the books of account to be kept.
- Duty to maintain shareholders registers. These not only need to be kept in proper format but also must be made available for inspection from time to time and updated where necessary.
- Duty to convene general meetings and extraordinary meetings of the company. General meetings would include meetings such as the annual general meeting which must be held every twelve months.
Under the 2003 Companies Acts, Section 45 introduced a new obligation on directors which is namely to complete a compliance statement. The information required is:
- The company’s policies in respect of its compliance with its relevant obligations.
- Its internal, financial and other procedures for securing compliance with its relevant obligations.
- Its arrangements for implementing and reviewing the effectiveness of the policies and procedures referred to in paragraph (a) and (b).
The statement must be in writing, submitted for approval by the board of directors and at least once every three years, must be reviewed and if necessary, revised. It must also be included in the director’s report under section 158 of the principal act.
The same section of this act also introduced and obligation that under the directors report under section 158 of the principal act that they must acknowledge that they are responsible for securing the companies compliance with the relevant obligations, that the company has internal, financial and other procedures in place to secure compliance with the companies obligations and confirmation that the Director has in fact carried out a review and revised where necessary.
Failure to comply with any of the above and a director is potentially guilty of an offence.
The reality for any modern director is that the position comes with a huge responsibility. For example, the office of the director of corporate enforcement has on its website produced a list of indictable offences which runs to over 26 pages.
Conways Solicitors can provide you with the full range of skills that are necessary to advise you in this area.
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