Duties of directors may be broadly summarised in the principles set out below:
Duty to act in good faith for the benefit of the company as a whole
A director of a company must act in good faith in the best interests of the company. This means that a director owes a duty to act in the interests of all its shareholders, present and future. In carrying out this duty, a director must (as far as practicable) have regard to the need to achieve outcomes that are fair as between its members.
Duty to use powers for a proper purpose for the benefit of members as a whole
A director of a company must exercise his/her powers for a “proper purpose”. This means that he/she must not exercise his/her powers for purposes that are different from purposes for which they were conferred. The primary and substantial purpose of the exercise of a director’s powers must be for the benefit of the company. If the primary motive is found to be for some other reasons (e.g. to benefit one or more directors and to gain control of the company), then the effects of his/her exercise of his/her power may be set aside. This duty can be breached even if he/she has acted in good faith.
Duty not to delegate powers except with proper authorisation and duty to exercise independent judgment
Except where authorised to do so by the company’s articles of association or any resolution, a director of a company must not delegate any of his/her powers. He/she must exercise independent judgment in relation to any exercise of his/her powers.
Duty to exercise care, skill and diligence
This means the care, skill and diligence that would be exercised by a reasonably diligent person with:
- the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and
- the general knowledge, skill and experience that the director has.
Duty not to gain advantage from use of position as a director
A director of a company must not use his/her position as a director to gain (directly or indirectly) an advantage for himself/herself, or someone else, or which causes detriment to the company.
Duty not to make unauthorised use of the company’s property or information
A director of a company must not use the company’s property or information, or any opportunity that presents itself to the company, of which he/she becomes aware as a director of the company. This is except where the use or benefit has been disclosed to the company in general meeting and the company has consented to it.
Duty not to accept personal benefit from third parties conferred because of position as a director
A director or former director of a company must not accept any benefit from a third party, which is conferred because of the powers he/she has as director or by way of reward for any exercise of his/her powers as a director. This is unless the company itself confers the benefit, or the company has consented to it by ordinary resolution, or where the benefit is necessarily incidental to the proper performance of any of his/her functions as director.
Duty to observe the company’s constitution and resolutions
A director of a company must act in accordance with the company’s articles of association and other constitutional documents. He/she must also comply with resolutions that are made in accordance with the company’s constitution.
Duty to keep accounting records
A director of a company must take all reasonable steps to ensure that the company keeps accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy the company’s financial position and financial performance.
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