Are you a director of your own company or another business? Do you fully understand your rights and obligations in this role? Many directors of small private companies may not be fully aware of the responsibilities they bear. Here, we explain what being a director entails.

The Role of a Director

As a director, you are appointed to manage the company’s business and affairs. In New Zealand, the role of a company director involves a wide range of duties and responsibilities, as outlined in the Companies Act 1993.

Key Responsibilities

1. Acting in Good Faith:

– Directors must act in ‘good faith’ and in the best interests of the company. This means acting honestly and sincerely without any intention to deceive. It’s a legal and ethical obligation to make decisions that benefit the company as a whole, rather than for personal gain. Good faith is fundamental in corporate governance, ensuring decisions are legally compliant, morally sound, and aligned with the company’s objectives.

2. Exercising Care, Diligence, and Skill:

– Directors must exercise care, diligence, and skill in their decision-making processes. This includes preparing and filing statutory documents, calling meetings, maintaining accurate company records, filing annual returns, and binding the company to contracts.

3. Non-Delegable Duties:

– Certain duties cannot be delegated. These include acting in good faith, exercising a duty of care, and ensuring sensible trading practices. Recent amendments to the Companies Act highlight that acting in the best interest of the company may involve considering factors beyond profit maximisation, such as environmental, social, and governance matters.

Legal Consequences

Failing to comply with these responsibilities can lead to significant legal consequences. Common mistakes directors may make include:

– Not Prioritising the Company’s Best Interests: Directors might fail to put the company’s interests above their own, leading to conflicts of interest.

– Lack of Care and Diligence: Poor budgeting or financial mismanagement can result from not demonstrating the expected care and diligence.

– Mishandling Conflicts of Interest: Decisions that favour personal gain over the company’s interest can lead to legal issues.

– Underestimating Administrative Tasks: Managing accurate records is crucial for compliance and effective governance.

Adhering to Legal Standards

While your goal as a director is to steer the company towards success, it’s essential to adhere to all required legal standards. This includes understanding and fulfilling all your duties and responsibilities under the Companies Act.

If you would like to discuss your role and responsibilities as a director and ensure you are meeting your legal obligations, please get in touch. We can provide guidance and support to help you navigate your duties effectively.