BECOMING A DIRECTOR ... new responsibilities

New directors keen to contribute to the success of their companies must begin by understanding the serious responsibilities, duties and potential corporate and personal liabilities involved with the official registration of their appointments at Companies House.

Welcome to the Board

Setting up the board of a new company, or being invited to become a director of an existing company, is almost certainly a major business and/or career step. But accepting an executive position brings with it new responsibilities that can have far-reaching legal implications.

There is a slight difference in the two cases. Directors appointed when the company is first registered are named on form IN01 as first directors. Subsequent directors, named on form AP01, can be appointed by first directors up to a maximum number stipulated in the company's articles of association.

From that point onwards, the board's executive powers should be used primarily to set the enterprise's strategic aims and policies, monitor progress towards achieving these goals, appoint senior management members and account for the company's activities to external parties.

A board appointment commits directors, usually collectively, to managing and exercising all the powers of a company in accordance with the Companies Act 2006, the business' articles and any prevailing shareholders' agreement. Articles often regulate borrowing by the company.

First things first

On taking up their posts, new directors need to provide for official registration purposes a list of personal information - full name, address, date of birth, nationality, country of residence, former names and business occupation. A new director is expected to add his or her signature to verify their consent to act as a director. A service address can be used instead of a residential home address.

New directors must also provide a general notice of any interests in contracts concerning the company. For quoted plcs, a declaration of interests in company shares is needed too under disclosure and transparency rules. In many cases, he or she may be reminded of the need to acquire any share qualification specified in the articles.

In turn, directors should make sure that they have access to the company's memorandum and articles of association. Additionally, they need to have detailed company information, such as recent board minutes, management accounts, plus statutory reports and accounts covering at least the last two years.

Crucial duties

A primary duty for directors is the preparation of accounts, with full and accurate accounting records, plus the directors' report. This includes preparing a balance sheet, plus profit and loss account, for each of the company's financial periods. It also covers the presentation to shareholders.

Other legal responsibilities include complying with the Health and Safety at Work etc. Act 1974. Similarly, it is important to remember that directors can be held to account personally under the Insolvency Act 1986 for wrongful or fraudulent trading.

They are also responsible under the Corporate Manslaughter and Corporate Homicide Act 20027. In certain circumstances, the Company Directors' Disqualification Act 1986 may apply too. In addition to being personally bound by statutory duties, the company as a separate entity must comply with statutory controls, for which the directors are responsible.

Where no company secretary is appointed as chief administrative officer in a private company, those duties will also fall on directors.

Positive contribution

In case these requirements sound onerous, taking up the role of a director should also be a real opportunity to exercise independent judgement with reasonable care, skill and diligence to make a business enterprise successful for all its stakeholders. These include shareholders, members of staff, senior management and the wider community.

The experience, new ideas, detailed knowledge and enthusiasm that directors are able to inject into a viable business can be a great source of success, satisfaction and pride.