By Warren Bygrave - 15 Nov 2013
One of the factors discussed in last week's blog was the thought
that must be given to what structure is best suited to your new or
startup business. Today's blog is about one of the options -
operating a company. For a number of reasons, many people
choose to run their business through a company. It is easy to
set up and relatively simple to administer but it does bring with
it some formality and a need to understand the obligations and
duties involved.
By way of example you must have at least one director - it is
likely that you will take on that role yourself. If so, it is
important to be aware of and understand the specific duties imposed
on you. Directors' duties include:
- to act in good faith and in the best interests of the
company
- to exercise powers for a proper purpose
- to exercise the care, diligence and skill of a reasonable
director
- to act in good faith and make proper enquiries when using
information and advice given by professionals or experts
- not to trade recklessly
- not to incur an obligation on behalf of the company that the
company is unable to perform
- not to cause or allow the business of the company to be carried
out in a way that creates substantial risk of loss to the company's
creditors
- not to use company property or information for own
purposes.
As well as owing duties to the company, a director owes some
duties directly to shareholders of the company and, in some
circumstances, to liquidators and creditors.
A breach of directors' duties can entitle a shareholder or
a creditor to bring a personal action against a director which may
strip away the protection a company might otherwise bring.
In addition, the Companies and Limited Partnership Amendment
Bill is currently making its way through Parliament and will impose
criminal liability on directors for a breach of certain
duties. Once this Bill is passed, directors will be held
criminally liable for breaches of:
- the duty to act in good faith or to act in the best interests
of the company if the director knows that the conduct is seriously
detrimental to the interests of the company; and
- the duty not to become involved in reckless trading if a
director knows that the conduct will result in loss to the
company's creditors and that loss occurs.
Duties imposed on company directors are only one of the many
issues which need to be understood when running a company. The
initial structure is very important to the way in which you conduct
your business. Like everything else, doing it properly at the
start can save you from problems in the future.
If you are considering setting up a company or becoming a
director of a company, don't be put off, just do it right. We
are always happy to discuss business structures and other business
related questions you may have.
Contact
Warren Bygrave