The Companies Act 1993 enforces a number of responsibilities on companies and their directors. How a company operates is also controlled by its constitution (if it has one). A constitution sets out the rights, powers and duties of the company, the board, each director and each shareholder.

A director of a company must not act, or agree to the company acting, in a manner that disregards the Act or the constitution of the company.

Directors are responsible for managing the company’s day-to-day business. In doing so, directors owe duties to the company, to its shareholders, and to others dealing with the company.

Directors must always act honestly, in what they believe to be the best interests of the company, and with such care as may reasonably be expected of them in all the circumstances.

Directors must not carry on the business in a manner likely to create a substantial risk of serious loss to the company’s creditors (“reckless trading”).

Company directors are much more accountable now than in the past. Many people appoint their spouses or partners as directors of a company, even if that person has little knowledge of how to run a business.  Some people think it is quite an honour being a company director, or that it looks good on paper. 

However, by encouraging a person to become a director of your company you are also potentially subjecting him or her to the risks of the business and especially to the responsibilities that go with a directorship.

We advise the businesses we work with to avoid inviting people to become directors unless they are proficiently skilled enough to add value to the business and they know the risks they are taking on. 

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