Company Directors Responsibilities in a Public Company
Company directors have a range of responsibilities outlined in company law, including the Companies Act, 2006 and common law. Many of these duties are similar regardless if a company is public or private, including a director's responsibility to ensure the success of the business they are appointed to manage. In some cases, public company directors have unique roles and responsibilities, such as additional reporting requirements to company members or shareholders.
About Public Company Directors
A public company, also known as a public limited company or PLC, offers securities such as stock or shares, to the general public. These securities are sold typically through a stock exchange or market makers. Public companies may or may not be listed on a stock exchange. When a public company is formed, at least two directors must be appointed. In the UK, a company director must by at least 16 years of age. A director must not be a discharged bankrupt or undergoing bankruptcy proceedings in the court. They must also not be registered as a disqualified director with Companies House or be deemed ineligible by the court.
Roles and Responsibilities
A director acts on behalf of the company and manages its affairs on behalf of the owners. The Companies Act, 2006 outlines the responsibilities of a company director who is duly appointed and registered with Companies House to serve as such. Public companies are required by law to hold annual general meetings, where directors may be elected or appointed through a vote among company members, such as owners or shareholders. In addition to a range of reporting requirements and other responsibilities to ensure the success and transparency of the company, public company directors are required to appoint a company secretary with appropriate knowledge and experience.
Act within Powers
Company directors must act within the powers provided to them in a company's constitution, such as the articles of association and memorandum. They must also act according to decisions made by the company's shareholders. Powers may vary from company to company.
The Companies Act also requires company directors to act independently and with discretion. However, decisions must be in line with the company's constitution, the director's contract or agreement with the company, and shareholder decisions.
Promote the Success of the Company
A company director is required under the Companies Act to act in a manner that benefits the company and its shareholders. They must also make decisions that have broader benefits and consider the longer term consequences of these decisions. Directors must consider, for example, the interests of employees and relationships with suppliers, customers and other stakeholders. Decisions must also be fair and consider impacts on the broader community and the environment, as well as the reputation of the company.
Exercise Reasonable Care
A company director must act with reasonable care using their skill, experience and diligence. There is an expectation that a company director with general knowledge, skill and experience will act reasonably when carrying out the functions of their position. When a company director has specific knowledge, skill or experience there is also an added or subjective expectation that will act reasonably.
Avoid Conflicts of Interest
Company directors must make decisions that benefit the company not themselves. Directors must therefore avoid conflicts of interest. A conflict of interest occurs when the director has multiple interests which may influence or corrupt a decision or action. In a public company, authorisation of a potential breach is only possible if specifically permitted in the company's constitution. To authorise a conflict, the board of directors or shareholders may approve the breach.
In addition to avoiding conflicts of interest, a company director must not accept benefits from a third party. This is to prevent situations where a director's decision is influenced by a third party or personal interests. Similarly, the Companies Act requires company directors to disclose any interest in a proposed transaction with the company. Failure to disclose self-dealing is a criminal offence.
Directors of public companies are also restricted from entering certain transactions with the company where there may be personal benefit, unless approval is sought by company members. These transactions include a quasi-loans, transactions with connected persons. Connected persons include the director's family members, a corporation linked to the director, trusts or trustees linked to the director or their family, or a business partner of the director or a family member.
Directors must keep company records and report any changes to the company's information, such as the trading address or the appointment of a new director, to Companies House and HM Revenue and Customs. As well as registering as a company director with Companies House, company directors must also complete a self-assessment and complete a personal self-assessment tax return annually.
In addition to preparing annual accounts, directors of public companies with a full listing must also prepare a remuneration report. This report must include information on policies and practices related to the remuneration of directors and senior staff. In addition to calling regular annual general meetings to present annual accounts and reports to members, directors of public companies must also call a general meeting whenever to report any serious loss of capital.