The Companies Act 2006 governs the general duties of a director of a UK limited company. Directors have authority to bind the company to contractual arrangements and obligations, and to incur liabilities on its behalf.
This authority has certain caveats which must be considered by prospective directors as well as shareholders. Directors are usually employees of a company, notwithstanding that they will have more power and responsibility than their colleagues. It is therefore vital that their rights, duties and authority are properly documented within their employment or service contracts.
At Mercantile Barristers, our barristers are adept at understanding the particular standards required of decision makers and leaders in your business; advising on the most appropriate form of agreements to curb or expand a director’s authority; and drafting appropriate employment or service contracts to protect the business.
Within a director’s service contract, it is important to include clauses that require a director to act within their powers; promote the success of the company; exercise independent judgement; exercise reasonable care, skill and diligence; avoid conflicts of interest; avoid accepting benefits from third parties; and to declare all personal interests in proposed transactions.
In addition to these general duties, a company may want to impose other duties on the director and these should also be included in the service agreement together with the consequences of failure to comply.
It is not uncommon that directors may also hold shares in the company. As such, shareholders’ agreements and employment or service contracts ought never to contradict each other but should always work together to stipulate the consequences for breach of either document.
For example, a majority shareholder may not want a director that has been dismissed for gross misconduct continuing to hold shares in the company. Our barristers are available to advise on such provisions.
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