Accepting a directorship is signing up to a set of legal duties that apply from the first meeting — whether or not anyone explained them, and whether the company is a listed giant or a family company that has never held a formal meeting in its life. Here is what they actually require, in usable terms.
Care and diligence. Directors must bring the attention a reasonable person in their position would bring: read the papers, ask the questions, understand the financial position well enough to genuinely judge it. “I left the finances to my co-director” is not a defence; it is frequently the problem. You may rely on management and advisers — but rely means assess, not outsource.
Good faith, and the company’s interest. Decisions must be made honestly, for proper purposes, in the interests of the company itself — which is not the same as the interests of the shareholder who appointed you, the family member across the table, or your own. In family companies this duty is tested constantly and casually: the company that pays for things because it’s all one pot, the loan to a relative on terms no stranger would get. The pot is not one pot. The law is clear on this even where families are not.
Conflicts and position. Directors must not misuse their position or company information for personal advantage, and material personal interests in company decisions must be disclosed and managed. The safest habit is disclosure early and minuted always — conflicts handled openly are administrable; conflicts discovered later are allegations.
Insolvent trading. The duty with the sharpest personal edge: directors must prevent the company incurring debts when there are reasonable grounds to suspect it cannot pay them as they fall due. This is where “I didn’t really look at the accounts” becomes personal liability. Directors of companies in difficulty need current financial information and prompt advice — the law offers meaningful protection to directors who confront trouble early and take advice, and very little to those who hoped.
The habits that protect you. Decisions minuted with reasons; financial statements actually reviewed; advice sought when the board is out of its depth; conflicts declared; and a personal file of what you knew, asked and were told. Directors’ duties are judged in hindsight, and the director with a record of diligence is in a different position from the one with recollections.
Directorships in private and family companies are accepted casually and carried personally. Understanding the duties is not pessimism — it is the job.
General information only
This article is intended as general information only and does not constitute legal advice. You should seek independent professional advice tailored to your individual circumstances before acting on any of the information contained in this article.