The board of directors, often called ‘The Board’ has a fundamental role in managing a limited company and is responsible for the governance and operation of the business. The Board should bring specialist skills to the top team and it is always good to have a mixture of personalities and styles so that there is a good diversity of ideas involved in managing the business.
When reading this guide you should think about how each of the directors of your business is contributing to the management of the company and discharging their responsibilities as a director.
Directors may either be individuals or companies registered as corporate directors. However, please note that the individuals who are directors of corporate directors can still be personally liable as directors, if in practice they act as the directors of the underlying company.
The following persons may not act as directors:
- an individual who is less than 18 years old;
- someone who is the subject of an interdict (e.g. somebody who is mentally unwell); or
- a person who has been disqualified from being a director.
When an individual becomes the director of a limited company they are subject to various duties which regulate their behaviour towards the company:
Duty to act in good faith and with due care
A director, in exercising his powers and discharging his duties, must:
- act honestly and in good faith with a view to the best interests of the company;
- exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.; and
- exercise his powers for the purposes for which they were granted and in accordance with the company’s Memorandum and Articles of Association.
- As a director has a position of trust, he must not take a personal profit from any opportunities arising from his directorship (and must pay over any such profit to the company).
- If a director breaches his duty to act in good faith and with due care as explained above, this will not be treated as a breach under the Companies Law if the company is solvent and all of the company’s shareholders approve the director’s actions.
Duty to disclose conflicting interests
A director has a duty to disclose to the company any direct or indirect interest he has in any transaction to be entered into by the company which materially conflicts with the interests of the company. For example, this could be a conflicting interest as a director or shareholder of another company involved in the proposed transaction.
The template Articles of Association in Part B allow for a director who has disclosed his conflicting interest to vote and be counted in the quorum at the relevant board meeting considering the transaction.
Duty to find a suitable company secretary
The directors have a duty to find a suitable company secretary. Every company must have a company secretary, although a sole director of a company cannot also be the company secretary.
In addition to the duties a director has to act in the best interests of the company, s/he also has a number of administrative duties.
The directors, as officers of the company, are responsible for ensuring that the company satisfies the following duties.
Every company must keep a register of its shareholders (known as members) including the following details:
- each shareholder’s name and address;
- the number and class of shares held by each shareholder (including details of whether the shares are fully paid up or not); and the date on which each shareholder became or ceased to be a shareholder.
Every company must keep a register of its directors and secretary, including the following details:
- the name and address of each director and the secretary;
- the nationality, date of birth and business occupation of each director; and
- the date on which each director and the secretary became, or ceased to be, a director or the secretary respectively.
Every company must prepare and record minutes of all proceedings at meetings of its shareholders (known as general meetings) and meetings of its directors (known as board meetings) in its company books.
Every company must hold an annual general meeting for its shareholders (in addition to any other meetings that year). However, companies may avoid the requirement to hold an annual general meeting if this is approved by all of the shareholders.
Every company must keep accounting records which are sufficient to show and explain the transactions of the company and disclose with reasonable accuracy, at any time, the financial position of the company.
The directors may at any time appoint auditors to examine the accounts and prepare a report following their examination. However, for a private company, this is optional and there is no legal requirement to appoint auditors.
Every company must (before the end of February in every year after its incorporation) deliver to the Companies Registry an annual return together with a filing fee of £210. The annual return should include details of the company’s shareholders and their respective shareholdings.
Breach of duty
A director will be liable for the breach of any of the duties described above and can also be liable in the following situations:
Breach of warranty of authority
A director is responsible for conducting the business of a company in accordance with its Memorandum and Articles of Association. Where a director acts outside of his authority, a third party dealing with a director will have a direct right of action against him for breach of warranty of authority.
Tortious or criminal liability
A director is an agent of the company. Therefore where a director instructs a company to commit a tort (a legal wrong) or a crime (such as tax evasion) he will be personally liable as well as the company, even though the tort or the crime was committed by the company rather than the director.
The Companies Law requires that before a company pays any distribution or dividend to its shareholders, the directors give a statement of solvency regarding the company’s expected financial position for the next 12 months. A director may be liable for failure to follow the authorisation procedure required by law.
Acting while disqualified
A director who has been disqualified by the courts and in breach of that order, acts as a director or takes part in the management of a company, will be criminally liable and personally responsible for the liabilities of the company incurred during that time.
Acting as a director during insolvency
Where a director’s personal property has been declared to be en désastre pursuant to the Bankruptcy (Désastre) (Jersey) Law 1990, he must immediately resign any directorship he has, or may become criminally liable.
A director may be liable for wrongful trading when he knows (or is reckless about the fact) that the company is likely to go into insolvent liquidation and he fails to take action to minimise the potential loss to the company’s creditors. Where a company is insolvent and it appears that any business of the company was carried on with an intent to defraud creditors, or for a fraudulent purpose, a director who was knowingly a party to the fraud may be personally or criminally liable.
As there are other situations relating to the insolvency of a company where a director may be personally liable, it is recommended that any director of a company which may be likely to become insolvent seek legal advice.
The Companies Law generally does not allow for a company to provide an indemnity to its directors. However, there are certain exceptions, including an indemnity for any liabilities incurred by a director in successfully defending civil or criminal proceedings and directors and officers’ liability (D&O) insurance.
Under the Companies Law, the court has power to relieve a director of liability in proceedings (or expected proceedings) for negligence, default, breach of duty or breach of trust against a director. Any relief by the court would be provided on the basis that it appears that the director is or may be liable in those proceedings, but that he has acted honestly and having regard to all the circumstances of the case, he ought fairly to be excused.