The board of directors are responsible for the management of a company. As well as ensuring proper corporate governance, an effective board of directors helps take the business forward.
Appointing board directors
Every company must have at least one company director. The appointment of new directors follows the rules set out in the company's articles of association, with new appointments typically made by the existing board of directors.
There are few restrictions on who can serve as a board member although exceptions include undischarged bankrupts, people who have been disqualified from acting as a director and those aged under 16. Your aim should be to ensure that the board of directors has the right mix of skills and experience for the business to succeed. In smaller companies, key members of the management team typically act as company directors.
Non-executive directors can bring in additional expertise. A skilled chairman who knows how to hold effective board meetings can be critical to how well the board of directors operates. A well-planned director induction process will help quickly bring any new directors up to speed.
Directors' responsibilities
Directors have various legal responsibilities. For example, they must promote the success of the company; they must not abuse their position to make a personal profit at the company's expense; they must avoid situations in which their interests (whether direct or indirect) either conflict or could conflict with the interests of their company (particularly if they exploit any property, information or opportunity); and any conflicts of interest must be declared.
Directors are personally responsible for ensuring that the company complies with company law, including checking and confirming to Companies House at least once a year (in a 'confirmation statement') that the information Companies House holds about the company is accurate (or, if not, what changes are needed) and filing annual accounts. They must also ensure good corporate governance, for example taking decisions in accordance with the rules set out in the company's articles of association.
As company law can be complex, the board of directors may want to take legal advice or training as part of their induction to ensure that they fulfil their responsibilities and that the right company administration procedures are followed.
Directors' liability
Directors can become personally liable for a company's debts if they allow the company to trade while insolvent with no reasonable prospect of survival. Wrongful trading like this could also lead to being disqualified from being a director. Directors can also face legal action and personal liability if they allow a company to trade fraudulently.
You might also face personal legal action if the company fails to comply with regulations: for example, if you discriminate unlawfully or if someone is injured as a result of your negligence. Exercising reasonable care in fulfilling your role as a director will minimise the risks.
Reviewed by Jonathan O'Shea, managing director, The Alternative Board (Bristol North)
