What Are the Duties of Directors in Company Law?
The duties of directors in company law are to act in the best interest of a company and its shareholders within the bounds of the law.3 min read
2. General Restrictions or Requirements on the Identity of Directors
3. Legal Enforcement of Director's Duties
The duties of directors in company law are to act in the best interest of a company and its shareholders within the bounds of the law.
Legal Duties and Responsibilities of Directors
Most companies act through two groups:
- The board of directors
A company's well-being rests on the shoulders of its directors. These people are responsible both for the company's interests and those of its shareholders. Directors can basically be considered fiduciary agents that are obligated to perform duties in service to the company. Fiduciary agents are those who have undertaken the responsibility to act on another's behalf in matters pertaining to relationships of confidence and trust.
The two distinguishing obligations of fiduciary agents are:
Simply put, a director's primary responsibility is to remain loyal to their company. These duties apply, not only in regards to decisions that are made in the boardroom, but also:
- When a director acts as an officer on behalf of the company
- When a director takes action regarding business affairs
- When a director handles company assets
These duties are owed by every one of the company's directors on an individual basis beginning from the very first day of the director's official appointment. Even in the event that a director resigns or is removed from their position, they may still be held liable for any breach of duty that occurred while they still held the office. The duties that are owed by a director are meant to benefit:
- The company as a whole
- Present company members
- Future company members
These duties do not pertain to individual people within the company and are broadly meant to benefit the company itself. A director is appointed by company shareholders to handle the company's daily affairs in a manner that will ultimately benefit the company and its shareholders. Their duties are based on certain equitable principles and rules established under common law.
General Restrictions or Requirements on the Identity of Directors
There is no limit in place that restricts the required age for corporate directors. However, corporations may impose age requirements in:
- The terms of its Certificate of Incorporation
- Company bylaws
- Corporate governance guidelines
It's worth noting that, of the top 100 companies in the United States, 79 have set mandatory retirement ages for non-employee directors. In fact, only 33 of these companies permit the company's board or board committees to make exceptions to this requirement. Most require that directors retire no later than the age of 72. In many cases, employee directors (excluding the chairman of the board in some scenarios) will retire from the company's board at the same time that they retire their employment with the company.
Generally speaking, there are no restrictions in place regarding a director's nationality. However, a director's nationality may be a relevant factor in certain regulated industries. Directors also don't typically have to be a resident of the state the company is incorporated in.
There are also no requirements stating that companies have to have a certain ratio of women to men, or vice versa, on its board. However, most companies try to make their board as diverse as possible, taking things into account such as:
- Professional experience
Some people are prohibited from being able to act as directors, such as:
- Bankrupt individuals
- Disqualified persons
- A person acting as an auditor of the corporation
There are no mandatory qualifications to become a director. However, a company's director is required to perform a number of duties and responsibilities and should be capable of doing this without issue.
Legal Enforcement of Director's Duties
The specific duties of a director are outlined in the Companies Act of 2006. These duties are not up to the director to decide to perform or not perform. Directors are expected to carry out their duties with all due diligence. Any breach or threat of breach is treated as a serious issue in the realm of corporate governance. A director's duties can't be considered important if they can't be fully enforced. Likewise, if the duties can't be enforced, they're not important and might as well not exist.
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