Directors of Private Limited Companies: Liabilities and Duties

From Tennis

Set out below are the fundamental duties and liabilities of which directors of private limited companies must be aware. The TDLTC is a private limited company, limited by guarantee (not shares). The information is intended as a guideline.

Fiduciary Duties

Directors are in a position to trust within a company and as such they owe certain fiduciary duties to the company and must have the best interests of the company in mind when dealing on behalf of the company. The fiduciary duties can be summarised as follows:

• Duty of Good Faith - The principal duty of directors of a company is to act in good faith in the best interests of the company.
• Duty of Skill and Care - Directors must act honestly and with due care and skill. They are required to exercise a degree of competence which could reasonably be expected from someone with their degree of knowledge and experience.
• No Secret Profit - The position of a director is similar to that of a trustee of the company's property. Directors should not profit personally from the utilisation of company property which includes assets and confidential information.
• Duty to Disclose Information - The Companies Act 1985 imposes various duties upon directors including requiring that certain information cannot be kept secret, such as a director’s personal interest in any matter discussed at a board meeting (e.g. a contract)
  • Section 317 - Personal Interest - If a director has a personal interest (whether direct or indirect) in any matter (e.g. a contract) to be discussed at a board meeting, he must formerly declare to his co-directors that he has such an interest. Depending upon the terms of the company's articles he may then be prevented from voting on that matter and counting in a quorum.
  • Section 318 -Service Contracts - All directors' service contracts, apart from those of less than one year, must be kept at the company's registered office and available for inspection by the shareholders.
  • Annual Accounts - Directors must ensure that full accounts (including a profit and loss account, a balance sheet, the auditors report and the directors report) must be produced and sent to all members of the company within 10 months of the accounting reference date. The accounts must also be sent to the Registrar of Companies.
  • Annual Return - It is the directors' responsibility to submit an annual return to the Registrar of Companies within 28 days after the return date.
  • Register of Directors - Directors must complete this register giving details of their name, date of birth, nationality, address, occupation and other directorships.
  • Register of Directors' Interests - The register of directors' interests records the directors' shareholding and debentures as well as any holdings by the directors' spouse and children where they are under 18.
  • Section 305 - Notepaper - To prevent the public being misled, either the names of all directors must appear on the company notepaper or the names of none of them.

Liability of Directors

Generally in the absence of misconduct directors have no liability whatsoever for any debts incurred on the company's behalf. If the Club were to go into insolvent liquidation, then the worst that can happen to the directors is that they lose whatever money they invested in the Club. However:

• Acting while Disqualified - If a person has been disqualified as a director by a Court and acts in breach of that order he will incur personal liability for any debts incurred by the company during the period in which he illegally acted as a director.
• Breach of Warranty of Authority - Where a director seeks to bind the company on matters outside his authority, the company is not deemed to be liable for the director's action. The party relying on the action will however be able to pursue an action against the director.

To find out more, contact Simone Kilka, Partner, Russell Jones & Walker (TDLTC’s Solicitors):

• Email: s.s.kilka@rjw.co.uk
• Web site: www.rjw.co.uk