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Thinking of appointing yourself as a director of a company?

9 February 2021

Learn about the duties and responsibilities of being a director beforehand.

There is often confusion about director roles and responsibilities however SFM are here to offer you expert advice on who you should appoint as a director and what you should expect from them.

1. What is a company director?

The term “director” has been defined in law. The Companies Act, 2008 (the Act) defines a director as: “A member of the board of a company, or an alternate director of a company and includes any person occupying the position of director or alternate director, by whatever name designated”.

A company director is often a person or persons appointed to a limited company to manage business activities, functions and finances.

The directors of a company are entrusted by the shareholders to carry out the function of the company. While day to day running of the company and certain tasks will be delegated to managers and other members of staff, responsibility for the acts committed in the name of the company rests with the directors.

2. Duties of a Director

All directors in a company are required to act lawfully and honestly while making decisions that benefit the company and its shareholders and guarantors. Duties of a director include declaring any conflicts of interest and avoiding acceptance of benefits from third parties or using their position to make private profits.

A company directors’ prominent responsibility is to make the business a success using their skills, experience and judgements to achieve principal objectives. They are to exercise independent judgement in all decision-making.

The role of directors in a company is also to use reasonable care, skill and diligence at all times.

A director’s responsibility also includes ensuring filing obligations are met and that the company is run in accordance with geographical laws, articles of association and the shareholder agreements (if one exists)

3. What makes a good director?

The role of directors, whether executive or non-executive, are challenging ones which require a specific set of skills and experience. Here we highlight what is essential to make a good director:

  • - Strong interpersonal and communication skills: Directors are increasingly expected to represent the companies they are associated with to clients and shareholders. Meetings and discussions often require presentations of company information and therefore directors are expected to clearly communicate what is necessary.
  • - Independent mind: Directors are required to make decisions in line with the best interest of the company and also with ethical and legal requirements in mind. Directors often face pressures from other board member when it comes to decision making and therefore are required to be of independent mind, no matter what the consequences.
  • - A strategic thinker: A director’s responsibility is to use their skills and experience to lead in a positive direction. To do this, directors need to assess long term opportunity and consequences of the decisions taken.
  • - Analytical: Directors are often presented with problems, to which they are responsible for finding solutions. The ability to analyze data efficiently and accurately is a valuable personality trait which is required.

In addition to the personal characteristics mentioned above, directors will also benefit from having the below:

  • - International exposure: as more businesses are operating internationally, having international contacts in major cities can be extremely beneficial. A director that brings with them international focus is becoming more valuable and attractive for companies.
  • - Industry expertise: Directorship in most companies requires the same set of skills but having experience in the specific industry of the company brings valuable knowledge which can contribute to strategic decision making.
  • - Financial Knowledge: All businesses are financially conscious and therefore having a director who is financially knowledgeable is also valuable in decision making.

4. Who can be a company director?

A company director can be a person or a corporate entity, such as a group, partnership, organization, charity, firm, another limited company or any other form of corporate body.

  • - Directors must be at least 16-years-old
  • - A director can also be a shareholder or company secretary
  • - The company auditor cannot be a director
  • - Any person that has previously been disqualified as a company director cannot be appointed to any other company whilst their ban is still in place.
  • - The first appointment of directors should be done in terms of the provisions of the company’s Memorandum of Incorporation (e.g. the Memorandum of Incorporation may permit the majority shareholder to appoint a certain number of directors).

5. What you should know before becoming a director

All directors, whether new or having previously been in a director position, should familiarize themselves with the company director responsibilities and duties of their new role, the business environment and operations of the business. This is regardless of whether the person has been promoted into the position of director and has worked at the company in another position.

It is suggested the company secretary is the best person to perform inductions and development programs to the newly appointed director due to assigned responsibilities.

Other critical issues you should know before becoming a director include the following:

  • - Time Horizon: A director’s role is to make decisions to ensure the long-term success of a company. In order do this, individuals should familiarize themselves with imposed deadlines and the importance of financial results to ensure the right decisions are made to not only make strategic short-term decision but also long term.
  • - Personal Liabilities of Directors: Each company and each jurisdiction will have its own legislations relating to the personal liability of becoming a director. In some cases, individuals are often surprised by the high level of person risk involved by taking on the position. Clarity on personal liability of becoming a director is essential before embarking on the role.
  • - Privacy and Public record: Depending on the company’s jurisdiction, director names will be placed on public record.

6. How to become a director

There is no single pathway to becoming a Director. Having the right traits is dependent on specific company requirements. Most large, publicly listed companies require their directors to have at least 20 years’ experience.

Becoming a director in a company presents opportunity to exercise skill, experience and decision making, however does not come without its risk. Our advice is to conduct full due diligence on the company’s history and future plans.

For more information on company incorporation contact us.

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