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Elements of Company Law II-Duties of Directors

Last updated date: 24th Apr 2024
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A company acts on a couple of basic bodies that are made by two types of people - the shareholders and the board of directors. It is the board of directors who take the baton of charge for managerial roles in a company. They are responsible for making operational and strategic decisions of a company and also ensure that the establishment meets the statutory obligations. The role of an individual director is to participate in the meetings held by the board and enable the same to reach the decisions, and all the obligations are fulfilled. 

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Effectively, the directors are the agents of a company who are appointed by the shareholders for managing everyday affairs. The primary rule is, all the directors performing under a board must act together to fortify the base of the establishment. Also, individual members (directors) have certain powers to form a committee within the board. A person who is a shareholder and an employee of a company gets additional rights in creating a connection with the office. However, it is pivotal to draw a distinction between the separate roles of stakeholders and employees to wear the perfect occupational hat in the workplace. To know more about the elements of company law consider the following elements of company law-II: duties of directors.

Duties of Directors in Company Law

  1. Acting Within Powers

Directors must work according to the company’s constitution and should only exercise the powers for the appropriate purposes.

  1. Promoting the Success of a Company

The duties of directors of a company also include the right way of promotion when the establishment reaches a milestone.

  1. Exercising Independent Judgement

Director’s duties include exercising independent judgement and stick to their own decisions. This does not force them to go against the constitution of the company.

  1. Exercising Skill, Care, and Diligence

It is the rights and duties of directors to exercise the same care, skill, and diligence within the establishment and secure the workplace with the utmost professionalism.

  1. Avoiding Conflicts of Interests

When it comes to the duties and responsibilities of directors of a company, staying away from conflicts is a wise choice.

  1. Non - Acceptance of Benefits from Third Parties

The perfect function of director is not to take benefits from third parties who are working along the company line.

  1. Declaring Interests in Proposed or Existing Transactions

The role of director in a company says a lot. Therefore, it is crucial to declare the extent and nature of interests with the other directors.

What are the Codes of Conduct for a Director?

The codes of conduct for a director determine the director’s duties and responsibilities. These include:

  1. The duties of the board of directors do not include taking advantage of the power of authority.

  2. The director’s responsibilities include diligently following the terms of the company and the orders of the senior executive officers.

  3. The duties of directors in company law state, not to use company information for personal achievement.

  4. The duties of directors of a company include attending all the meetings held by the board and providing company-centric ideas and insights.

  5. The director’s duties do not illustrate in getting indulged in a conflict only to gain personal interest or that of the company.

  6. The rights and duties of directors are to respect the authority of the employees and the workplace.

  7. The duties and responsibilities of directors of a company are to conclude in a logical debate with the approval of the majority.

Why are the Codes of Directors so Important?

The directors of a company play a governing role on behalf of the shareholders and the members of the entity. Directors’ duties are associated with various legislations, and they outline some legal duties to uphold during the tenure. However, there are several laws and other requirements for which the directors are liable for. Setting up a good behaviour standard is also pivotal apart from the legal arrangements, and thus, it is considered as a good governing practice to set up high expectations in the future.

FAQs on Elements of Company Law II-Duties of Directors

Q1. Define the Duties of Directors in Company Law.

A1. As per The Companies Act 2013, there is an array of obligations when it comes to the directors of a company. The acts are imposed to maintain a healthy relationship between the board of directors, third parties, shareholders, and employees. In the event of a failure, both the company and the director are liable to face the complications. Depending on the specific obligations, potential penalties can be enacted. This includes being fined for breaching the guidelines. In most serious offenses, imprisonment is also applicable. Some of the most significant duties of directors include behavioural roles and conducting the management with the utmost dedication.

Q2. Why Must Directors have Their Own Set of Personal Standards?

A2. The duties of directors of a company are designed for the promotion of good governance and ensuring an act of interest from each director towards the stakeholders of the company. Apart from the legal obligations, the board is also liable for setting up an ethical and responsible tone to increase the decision-making thought processes in the workplace and especially, in the board meetings. Maintaining this practice is a good choice for the overall organization as it helps in boosting organizational morale and culture.

Q3. Why Shouldn’t Directors Benefit from Third Parties?

A3. The rights and duties of directors do not tell directors to reap advantages from the third parties. This is because it is the director’s duty to promote business success rather than accepting a benefit as a bribe from the third party. This may hamper the reputation of the business in the long run. Offers like corporate gifts and hospitality must be accepted with extreme caution as in most cases, benefits provided to the director in the hope winning business prospects have let down both the parties. Benefits from third parties can be a major blow, especially, if they are directed to a particular director on the board.