Who is a director? Directors – The Fundamentals – Part 1

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Over the next 3 weeks, we will be doing a blog series about company directors. This blog series will explore some of the fundamentals of this topic.

who is a director who is a directorIn part 1 of this series (this post), we will ask and answer the question, “Who is a director?”. We will also look at the risk involved with being a director. Part 2 will look at the duties of a director. Our final post, part 3, will then discuss ways to manage and limit your liability as a director. Be sure to subscribe to our blog if you do not want to miss parts 2 and 3!

Ok, so lets delve into this topic of “directors”. We will start by looking at the question of whether you actually are a director, because if you aren’t, the risks and duties don’t apply to you. Following from this, we will look at the risks involved in being a director.

Who is a director?

This question is critical. The current law (the new Companies Act), has broadened the scope of who can be recognised as a director. It does not matter whether you have the formal title of director or not. Anyone who is a director regardless of her title is included in the definition. Even audit committees and certain senior managers with defined levels of power or function can be considered directors under the new Companies Act. Simply put, if the factual situation reflects that you are acting like a director in the company then you will be recognised as a director according to the law.

If you are uncertain as to whether you would be considered a director or not in your company, we highly recommend consulting a legal professional. Contact Gunstons at [email protected].

Your risk as a director

So lets assume that we have established you are a director. The next question we can ask is, what risk comes along with the job? The unfortunate news is that your risk for personal liability has risen sharply since the coming into force of the new Companies Act.

Any loss, damage or costs suffered by the company as a result of your actions will leave you potentially liable. The law states that your potential liability is enforceable by not only your fellow directors, but also your shareholders, employees and trade unions. All of these parties can force the company to take action against you.

It is important to understand that your risk is high. You need to manage this risk. In order to manage this risk, you need to be aware of your duties as a director. Next week’s blog post will cover the topic of duties. So as not to miss the next instalment of this blog series, subscribe to our blog!

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