Directors manage the business of a company on behalf of its shareholders. Whether they are founders running their own business, non-executive directors or nominee directors, they are subject to the same core legal duties. Before the Companies Act 2014, many of these duties existed only in case law. The 2014 Act codified them, making it clearer what is expected of directors and how they can be held to account.
Who Can Be a Director
A director must be at least 18 years of age and must not be disqualified or restricted from acting as a director. A private company limited by shares (LTD) can have one director, while most other company types need at least two. At least one director must be resident in the European Economic Area, unless the company has a Section 137 bond or a certificate of a real and continuous link with Ireland. An individual can generally hold no more than 25 directorships of Irish companies at any one time, subject to certain exceptions.
The Eight Fiduciary Duties
Section 228 of the Companies Act 2014 sets out eight principal fiduciary duties. A director must:
- Act in good faith in what the director considers to be the interests of the company.
- Act honestly and responsibly in relation to the conduct of the company's affairs.
- Act in accordance with the company's constitution and exercise powers only for the purposes allowed by law.
- Not use the company's property, information or opportunities for their own or anyone else's benefit, unless permitted by the constitution or approved by the members.
- Not agree to restrict their power to exercise independent judgment, unless permitted.
- Avoid conflicts between their duties to the company and their other interests.
- Exercise the care, skill and diligence that would reasonably be expected of a person in the same position.
- Have regard to the interests of the company's members, in addition to the other duties.
These duties are owed to the company itself rather than to individual shareholders. Directors are also required to have regard to the interests of the company's employees in general.
Compliance and Reporting Responsibilities
Beyond the fiduciary duties, directors have a general duty to ensure the company complies with the Companies Act. This includes keeping adequate accounting records, preparing annual financial statements that give a true and fair view, filing annual returns with the Companies Registration Office (CRO) on time, maintaining the statutory registers and keeping the Register of Beneficial Ownership up to date. Larger companies, with a balance sheet total above €12.5 million and turnover above €25 million, must also include a directors' compliance statement in their directors' report.
Disclosure of Interests and Loans
Directors must disclose their interests in contracts with the company and their interests in the company's shares. There are also strict rules on loans and similar transactions between a company and its directors. As a general rule, loans to directors or connected persons exceeding 10% of the company's relevant assets are prohibited, unless they are approved under the summary approval procedure set out in the Act.
Personal Liability for Directors
Limited liability protects shareholders, but it does not always protect directors. A director who breaches their duties can be required to account for any personal gain and to compensate the company for its losses. Where a company becomes insolvent, directors may face scrutiny of their conduct. Reckless or fraudulent trading can lead to personal liability for the company's debts, and directors of insolvent companies can be restricted or disqualified from acting as directors in future. The Corporate Enforcement Authority is responsible for investigating and enforcing breaches of company law.
Support for Directors
Most directors rely on professional support to meet their obligations, particularly in relation to company secretarial work, statutory filings and accounting. Directors' and officers' insurance is also commonly used to protect against the cost of claims. Delegating tasks does not remove a director's legal responsibility, so it is important that directors understand their duties and are kept informed of the company's compliance position.
For further guidance and support for company directors and their compliance obligations, contact Setup Your Company at info@setupyourcompany.ie or call us on 01 628 3177.
