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Duty of a Director: what does “success” mean to you?

The Companies Act 2006 says that a director should promote the success of the company for the benefit of its members as a whole taking into account a number of stated factors.

So how do you do achieve this?

As “success” in this case is a subjective notion the question is how does your company define “success”?

Many businesses do not give much thought to the details of this but giving this some thought may be of practical use to your company. For instance, having a business plan which outlines the aims and goals of the company and how they are to be achieved would be beneficial not only as a mission statement but has a record of the direction of the company. In addition, creating a plan and reviewing it regularly reduces the potential for conflict between those involved in the company and, hopefully, allows the directors to consider whether an opportunity fits the company.

Promoting the success of the company does not mean that the director always has to make the most profitable decision etc. – the question is whether the director honestly believes the decision was in the interests of the company. However, it must be remembered the standard to be met here is affected by other issues – for instance, the duty on directors to act with reasonable skill may prevent you from making an adverse commercial decision regardless of whether you believed the decision would lead to success or not.

It is also important to remember that you need to act for benefit of the members as a whole. If you are the director of a company with more than one shareholder, you will no doubt be aware that the individual shareholders (even if they are related) will have, to one extent or another, differing goals in relation to the business. Despite this, the 2006 Act and case law makes it clear that you are not there to act in your own interests or the interests of the shareholder(s) you agree with, you are there to act in the best interest of the shareholders as a single unit.

If you are a director or shareholder and have any questions regarding director duties or responsibilities, please speak to our experienced corporate team:

Steven Wicks                       saw@businesslaw.co.uk

Alan D Stalker WS               ads@businesslaw.co.uk

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