English law imposes on company directors high standards of behaviour and they must put the interests of the company before their own. Their duties are derived from both statute and case law. In addition to general duties, there are extensive specific duties. This is an introductory guide to those general duties.
Who is a director?
The Companies Act 2006 (CA2006) defines a "director" to include any person occupying the position of director, by whatever name called (section 250 CA2006).A person who is formally appointed as a director will be a director. In addition, someone who is acting as a director without having been formally appointed (called a de facto director) will also, generally, come within this definition.
Are there any qualifications for being a director?
Currently both companies and individuals can be directors
There are very few circumstances in which a person may not be appointed as a director:
- the person must not have been disqualified by a court from acting as a company director (unless a court has given him or her permission in relation to a particular company);
- the person must not be an undischarged bankrupt (except with leave of the court);
- the person must not be under the age of 16;
- a company must have at least one director who is a natural person; and
- a company's articles may set requirements. For example, a director may be required to hold a certain number of the company's shares.
The Government intends to introduce a prohibition on appointing corporate directors. It has not yet announced the expected date nor has it published the limited exceptions.
What are the differences between an executive and a non-executive director?
Executive directors are involved in the day to day management of the company's business. They are also employees of the company, usually working full time. They will have additional rights and duties as employees and under their employment contract with the company.
Non-executive directors are not involved in the day to day management of the company. They may have particular skills to contribute, perhaps in relation to business strategy or financial matters. They often offer an independent viewpoint on matters discussed at board level and oversee the overall effectiveness of the executive directors' management of the company. They would be engaged, usually on a part time basis, under a services agreement, which would give them additional rights and duties, but not as an employee.
The law does not make any distinction between executive and non-executive directors in relation to their duties as a director. Therefore, it is not the case that the legal duties of non-executive directors are less onerous than those of executive directors. However, in relation to the duty to exercise reasonable care, skill and diligence (see below), the law does recognise any particular expertise that a certain director has...