Services for Directors
We offer advice on all aspects of company law to help with the smooth running and development of your business. With the correct advice, even a problem can be an opportunity to strengthen your business. Discuss your business issues with us and see how we can help you maximise the benefit for your business.
If your business has disputes, either internally or with 3rd parties, come and talk to us about how best to protect the value of your business and find practical solutions. It is unlikely we will not have dealt with similar situations before - what may seem a mountain to you can become a molehill once we assist you.
Who is a director?
A person who performs the role of a director will generally be considered one - even if they have a different name or title. Therefore, the meaning of the word - and the obligations it places upon someone working in a management role in a company - will depend on the context.
The law recognises that someone may act as a director without in fact being formally appointed as such. Such a de facto director will be treated as a director at law - and will be deemed a fiduciary in respect of the company.
Likewise, a person who pulls the strings in the background may be deemed a shadow director and still be held liable in the same way as if registered as a director.
To determine if someone acting in a company could be deemed a director consider the following tests:
- Do they undertake the duties which could be done only by a director?
- His or her title or description is irrelevant: it is not what they are called that matters, but what they do
- Do they take part on a basis of parity to directors?
- Do they exercise real influence?
The seven general duties owed by directors under the Companies Act 2006 are:
- To act within his or her powers
- To promote the success of the company
- To exercise independent judgment
- To exercise reasonable care, skill and diligence
- To avoid conflicts of interest
- Not to accept benefits from third parties
- To declare all interests in a proposed transaction or arrangement
These are not the only duties owed by directors: there are others under the Companies Act, such as to exercise care, skill and diligence and administrative duties such as to maintain statutory registers and make filings at Companies House. Many other duties arise under other statutes such as those relating to health and safety, product liability, insolvency.
Contractual employment for directors
A director’s service contract will usually address the principal terms of their employment - including job title, salary, hours and any benefits. However, this will often need to be read in conjunction with the company’s employee handbook and any pension plan or other document generally applicable to company employees.
In addition, a director will have actual authority to bind the company to contractual arrangements and obligations, as well as incurring liabilities on its behalf It is worth considering how you will restrict a co-director’s authority with 3rd parties and provide for the consequences of breaches.
A working director is also an employee and so their service agreement will contain many of the provisions common to a standard employment agreement. These will include a description of any duties and obligations, rights to remuneration, holiday, sickness benefits, pension and so forth.
It will also contain references to the duties owed in his capacity as a director under the Companies Act which for the first time codified in part a director's duties. Directors of listed companies are also subject to the additional obligations under the Listing Rules, Prospectus Rules, and Disclosure and Transparency Rules of the Financial Conduct Authority and also the UK Corporate Governance Code which has been under review by the Financial Reporting Council since December 2017 with a view to agreeing a new revised Code.
The lack of a director's service agreement means that the only controls will be those general obligations imposed under common law or statute and perhaps any that can be implied in the particular industry sector.
Failure to put service agreements in place will also leave a company open to more risks of claims by a director and less protection when a director leaves. It will generally be in the director's interest also to have a properly drafted service agreement which defines the director’s rights and obligations.
The tying in of any incentivisation such as bonuses, shares or other long term incentive plan (LTIP) should also be linked to a director's fulfilment of the contractual obligations under his service agreement.
We can assist with all aspects of service agreements for directors including the drafting of LTIPs.
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Contact Clough & Willis
If you are in need of legal advice about any aspect of business and law, the commercial law solicitors at Clough & Willis are here to offer expert guidance. We have highly accessible offices in both Bolton and Bury.