Directors Duties & Responsibilities

 
The private limited company is a separate legal entity often used by business owners as a trading structure.  Basically speaking, the company is owned by the shareholders/ members while the duty of the directors is to act as custodians, looking after daily operations and strategy (for many companies, the shareholders and the directors are often one and the same people which can cause some confusion). 
 
One of the main reasons for setting up as a limited company is the limited liability clause i.e. the liability is limited to the loss of shareholder funds invested in the company without personal liability to creditors. However, given their role as directors, it is important that individuals also ensure that they  act in the best interests of the company as a whole and it's stakeholders, in accordance with their duties and responsibilities. Should directors be negligent in respect of these duties, they can potentially face sanction  including penalties and fines, restriction/ disqualification, personal liability for company debts incurred and indeed a prison sentence. 
 
These directors’ duties and obligations arise from two primary sources : statute (i.e.by Oireachtas legislation, EU Regulations) and common law (as per case law). We set out below a summary of the main duties which every company director should be aware of and compliant with :
 
 
1) Duties as a Company Officer
A director, as an officer of the company, is under duty to comply with his or her obligations under the Companies Acts and to ensure that the requirements of the Companies Acts are complied with by the company. A director is in breach of this duty where they authorise or permit a default to take place.
 
 
2) Duties to Maintain Proper Books and Records
Under section 202 of the Companies Act, 1990, every company is required to maintain proper books of account. The directors of the company are required to ensure that this requirement is complied with. It is a criminal offence for any director of the company to fail to take all reasonable steps to ensure compliance with this requirement.
 
 
3) Duty to Prepare Annual Accounts (Financial Statements)
Generally, companies (and by extension directors) are required to prepare accounts on an annual basis. The annual accounts (known as ‘financial statements’) are required to give a ‘true and fair view’ of the company’s affairs.
 
 
4) Duty to file Annual Accounts at the Companies Registration Office
The directors are obliged to file annual accounts at the Companies Registration Office (CRO) within 28 days of the Annual Return Date (ARD). Filing on time maintains compliance and avoids late filing fees. It is also important to file on time to maintain the option of filing audit exempt accounts which many companies can avail of.
 
 
5) Duty to file Statutory Forms with Companies Registration Office
As well as the Annual Accounts, the directors should also ensure any changes in the company vis-a-vis a change of registered office, a change in share capital, a change of director/secretary, resolutions passed, notifications of the creation of a mortgage charge are also filed on the public register in the Companies Office.
 
 
6) Duty to Maintain a Company Register
The directors are responsible for ensuring that the company fulfills its legal obligation to maintain the statutory register and minute book at the company’s registered office address. The register should be available for inspection by the Office of the Director of Corporate Enforcement (ODCE) or indeed a member of the public.
 
 
7) Duty to Convene General Meetings AGMs/EGMs
Company law provides for two types of meeting of a company, namely an Annual General Meeting (AGM) and an Extraordinary General Meeting (EGM). Every company is required to have an AGM annually and within nine months of the financial year end. An EGM deals with certain circumstances (e.g. where Net Assets have fallen to 50% or less of the share capital). 
 
 
8) Duty of Disclosure
The directors are required to disclose interests in shares of the company or related companies (CA 1990) or in relation to any contracts entered into by the company (CA 1963).
 
9) Duties Regarding Directors Transactions
Further to S29 CA 1990, where a director or person connected with a director acquires an asset from, or sells an asset to, the company and the value of that asset exceeds €63,487 (£50,000) or 10% of the company’s net assets, the arrangement must be approved by resolution of the company in a general meeting.
 
Further to S31 CA 1990, a company is generally prohibited from making a loan, quasi-loan, entering into a credit transaction, or providing a guarantee or security on behalf of a director or connected person. The general prohibition does not apply if the amount is less than 10% of the company’s net assets. 
 
 
10) Duties of Directors of Companies in Liquidation and Directors of Insolvent Companies
 
Insolvent Company : A director can be held personally liable for a company’s debts if found liable for reckless trading (i.e. trading while insolvent) or contracting a debt which was clear could never be paid.  Similarly, a director found guilty of fraudulent trading, can be held personally liable (without limitation) and it is a criminal offence.
 
Company in Liquidation : Where a company is being wound up, the directors are under a duty to co-operate with the liquidator. In the liquidator’s report to the Director of Corporate Enforcement, the onus of proof is on the directors to show that they have acted honestly and responsibly to avoid restriction proceedings. 
 
 
By observing the prescribed duties and responsibilities as outlined above, company directors can take significant steps to ensure that they are compliant with company law and are fulfilling their fiduciary duties to the company stakeholders.
 
 
The above information is of a generalised nature only. For further information, or for advice in relation to a specific case, call McCarthty & Co on 01 444 5260.