Company Director’s Duties

ROLES AND DUTIES OF COMPANY DIRECTORS IN IRELAND

Every Irish company must have a minimum of two directors (except a Private Company Limited Companies, which can have one director if it chooses). The responsibilities of a company’s directors have constantly been evolving in recent years. At the same time, the directors are entrusted with ensuring that the company’s operations are run successfully and in the best interest of its stakeholders; there are several fiduciary and statutory responsibilities the directors have to take care of. The directors of a company need to be aware of all these duties since non-compliance can lead to statutory action against the directors and the company. In this guide, we demystify who can be a director, their eligibility criteria and the responsibilities that they are assigned.

 

What are the Eligibility Criteria for a Director?

Let us first understand who can be appointed as a director.

Aged 18 years and over – All company directors must be of the age of 18 years and above.
Not a declared bankrupt – A person who is undischarged bankrupt cannot act in the capacity of a director. Undischarged bankrupt refers to the fact that the person has been declared bankrupt by the court and has not yet obtained a discharge certificate.
Not disqualified/restricted from being a director – A person who has either been disqualified by a court or failed to prove to the court that they have acted bona fide and fairly.
Resident in Ireland – At least one of the directors of an Irish company should ideally be resident in Ireland or a European Economic Area (EEA) member state. However, if all of the company’s directors are non-EEA residents, the company should purchase a non-EEA resident director bond under section 137.

 

What are the Different Types of Company Directors?

The Office of the Director of Corporate Enforcement explains the five types of directors.

Executive Directors – These are engaged in managing the company’s affairs. Examples include the managing director or sales director of the company.
Non-Executive Directors – These are the directors appointed on the Board of directors since they possess the knowledge, insights and experience and can provide the company with independent advice.
Alternate Directors – These perform the duties of a director in their absence and are chosen by any such director who is unavailable for a certain period.
Shadow Directors – Shadow directors instruct the board to pursue a particular course of action. They act as a director even when they are not formally appointed and are subject to the legal responsibilities of a director.
De Facto Directors – Even though these directors are not formally appointed, they undertake to perform the duties of a director.

 

What are the Duties of a Company Director?

The directors assume various responsibilities owing to the fiduciary nature of their relationship with the company. As a result, they have several duties towards the company, other persons and the statute.

Duties towards the Company

• Acting in good faith and maintaining confidentiality – A director must act in good faith in all matters affecting the company and its stakeholders. He must ensure to act within the powers assigned to him. A director should also be aware that information about company affairs is not to be disclosed.
• Avoiding conflict of interest – A director must avoid any situation where his interest conflicts with the duties of the company. For instance, if the company enters into a contract in which the director has a direct or indirect interest, he must disclose this fact. Likewise, the sale or purchase of shares in a company by a director should also be disclosed to the company.

Duties towards other persons

• Duty towards shareholders and employees – Directors are obliged to regard the interests of the employees and members of the company. The directors do not owe the responsibility to each member. However, the aggrieved members can utilise their voting power to give effect to a such duty of the director.
• Duty towards the creditors – In circumstances where there is a risk of insolvency, the primary responsibility of the directors shifts from the shareholders to the creditors. This means that the creditor’s interests come first if liquidation becomes inevitable.

Duties towards the Statute

• Duty of compliance – This is a general duty to ensure compliance with all the relevant provisions of the Companies Act. The directors are required to maintain a record of the minutes of all the meetings of shareholders or directors. They also must convene an Extraordinary General Meeting where the circumstances necessitate holding one.
• Duty of disclosure – In addition to the requirements for disclosing their interests in any contract being entered into by the company, or the stake in shares of any related companies, the directors should also tell their personal information to be accurately recorded in the company records.
• Duty to be aware of the financial position – The directors need to be able to read the company’s financial statements and reports and analyse the company’s performance. They must also ensure that the company maintains sufficient financial records as the law requires. An accountant can help with performing this role. It is also vital for the directors to exercise reasonable care, diligence and skills when exercising their powers.

 

Way Forward

Are you setting up your business and acting as your company’s director or being appointed to the board of directors of another company? First, it is essential to know that a host of responsibilities accompanies the authority you can exercise, being a company director.

The director role entitles you to add value to the company using your expertise and skills, and you can have a say in how the company is run and managed. However, the role comes with several obligations and restrictions and failing to ensure compliance could lead to fines and penalties. It is, therefore, best to know the responsibilities beforehand and take any necessary actions to help you fulfil the duties of the law.