A person can be a director without necessarily bearing the title. A shadow director is defined as 'a person in accordance with whose directions or instructions the directors of the company are accustomed to act'. Non-executive directors are directors for all purposes of the Companies Act and carry all relevant responsibilities.

All private companies need only one director. Any changes of directors must be notified to the Registrar of Companies within 14 days.

Duties

A director must always act in accordance with what he or she believes to be the best interests of the company and must avoid any conflict of interest between company and personal matters.

The Companies Act imposes a wide range of restrictions on directors, the principle ones being:

1. Loans
A company may not make a loan to, or provide a guarantee for, a director (or director of its parent company) or enter into indirect arrangements to achieve this.

These restrictions do not apply to loans under £10,000, loans made to a director to perform his duties or loans to meet expenditure for company purposes.

2. Substantial Property Transactions
Substantial property transactions by a company involving a director or connected person must first be approved by the company at a General Meeting. Such transactions include those where a director or connected person buys from or sells an asset to a company, the value of which exceeds the lower of £100,000 and 10% of the company's net assets. Transactions where the value is less than £5,000 are not relevant.

3. Interests in Shares or debentures
Directors have a duty to notify the company of any interests they and/or their spouse and children have in its shares or debentures, and of any changes in those interests.

4. Interests in Contracts
A director must disclose his or her personal interest and the interest of connected persons - direct or indirect - in company contracts.

5. Service Contracts
Directors' service contracts must not exceed 2 years, unless approval of the members in General Meeting has been obtained.

Statutory Duties

There are numerous statutory duties which apply to directors, many of which are linked to defaults by the company.

Some duties, whose breach is a criminal offence, apply only to the director. One of the most important is the duty not to deal in securities when in possession of unpublished price sensitive information ('insider dealing')

One of the most important issues is the director's responsibility to make certain that company documents, including cheques, he signs, or authorises to be signed on his behalf, mention the company's name as registered.

A company's name must include 'limited', 'public limited company' or the permitted abbreviations.  The simple omission from a cheque or other document of 'Ltd' or 'Plc' is sufficient to ensure that the directors are personally liable as is the abbreviation of a word (e.g. M Smith Ltd instead of Michael Smith Ltd) and the omission of an ampersand (e.g. M J Smith Ltd instead of M & J Smith Ltd).

Company Accounts

Directors' duties in respect of company accounts are stringent and comprehensive. Directors are responsible for preparing a profit and loss account and a balance sheet, ensuring that proper accounting records are kept and taking all possible steps to ensure that the accounts show a true and fair view. This is reflected in the 'Statement of Directors' Responsibilities' which has to be attached to the statutory financial statements.

Directors are also under a statutory requirement to provide the company's auditors with all necessary information and explanations. Criminal proceedings may follow where a director "knowingly or recklessly" makes a "misleading, false or deceptive statement" to the auditors.

Care and Skill

The standard of care required of any company director is "such care as an ordinary man might be expected to take on his own behalf". The degree of skill required is "such a degree of skill as may reasonably be expected from a person with (the particular director’s) knowledge and experience".

Duties to Whom?

The duties of directors under general law are owed to the company and not to its shareholders so it is the company, or its liquidators, which can sue. Creditors can, in the case of a company in liquidation, apply to court for an order compelling the directors to repay such sums as the court considers 'just' in respect of the directors' "misfeasance or breach of trust".

A director who is knowingly a party to fraudulent trading may also be personally liable to creditors.

Recommendations

It is recommended that, as a matter of good practice, every board of directors should:

• Minute carefully the particular responsibility of each board member.
  

• Ensure that appropriate management information is provided to it at regular intervals and that action is taken where necessary.
  

• Record at least in outline the information presented to it, any action it resolves to be taken as a result and the director(s) responsible for implementation.
  

• Seek proper professional advice on all material matters not within the general knowledge, skill and experience of the company's own directors and senior staff.
  

Those who are not directors but have close business connections with a company should satisfy themselves that their relationship does not make them shadow directors.

Please note: This guide is intended to provide basic information only. Where specific advice is required, we recommend that you seek proper professional help; either from this firm or other suitably qualified person or practice.