Before diving into your legal duties, it helps to understand what being a director means and how it differs from other rights in a company.
Director vs shareholder
These are two distinct roles, though in smaller companies the same people often hold both. Understanding the difference matters because the rights and responsibilities are different.
Shareholders
Shareholders own the company. They have invested capital and receive dividends when profits are distributed. Their role is to elect directors, and remove directors, approve major decisions, and decide the company's ultimate direction.
Shareholders generally do not owe duties to the company. They can act in their own interests when voting on shareholder matters.
Directors
Directors manage the company on behalf of the shareholders. They make day-to-day decisions, set strategy, and are responsible for the company's operations. The board of directors is accountable to shareholders.
Directors owe legal duties to the company. When acting as a director, you must put the company's interests first, not your own. Likewise, unless the company's constitution provides otherwise, directors must act in the best interests of the company, not the shareholders that appointed them.
Key responsibilities overview
As a director, you are responsible for the management and direction of the company. This includes:
- Setting the company's strategic direction
- Overseeing financial performance and reporting
- Ensuring the company complies with its legal obligations
- Managing risk appropriately
- Making decisions in the best interests of the company
- Accounting to shareholders for the company's performance
Personal liability
This is where many directors become concerned. Unlike shareholders, whose liability is generally limited to losing their investment, directors can be personally liable for certain matters.
Personal liability can arise from a breach of director duties, reckless trading, certain tax obligations, and health and safety failures. We will cover these in more detail in the next step.
Do not panic. Director liability sounds scary, but it is manageable. Understanding your duties and acting reasonably goes a long way. Most directors never face personal liability issues because they take their responsibilities seriously.
What we do at this stage
We help you understand what you are taking on when you become a director. Whether you are joining your first board or have been a director for years, we can explain how your responsibilities apply to your specific situation.