If someone is asked to become a Director, they are usually pleased to have been approached but prior to taking up such an appointment, what should potential Directors be asking? It is vital to ensure that you have sufficient information on the Company to ensure you can comply with your legal responsibilities and that you understand the Company's business and its financial circumstances.
So what information should you ask for and when?
Prior to taking up any appointment, potential Directors should ask to see the following:-
- a summary of the role of the Director including details
of day to day responsibilities;
- current business plan including budgets for the current
financial year and any future budget available;
- the previous year's report and accounts;
- a structure chart showing the Company's major
shareholders, details of all subsidiaries and associated
companies and any joint ventures;
- a copy of the Company's Memorandum and Articles
- Minutes of the last 3-6 Board Meetings;
- the Company's guidelines on convening Board
Meetings, matters reserved for the Board, any delegated
authorities (cheque signing etc.);
- details of any ongoing or potential litigation;
- insurance policies in place including D&O
- contact details and biographical details of all the
Directors of the Company, the Company Secretary and any other
key members of the management team, together with details of
their day to day responsibilities.
This information should give you a clear understanding of what is expected of you in this role and whether or not you want to say yes. Having decided to become a member of the Board, it is important that Directors take steps to develop their knowledge of the Company, its operations and staff. Directors should familiarise themselves with the following:-
- the Company's main products/services;
- review copies of recent press cuttings and reports
relating to the Company;
- obtain details of the Company's lawyers, bankers
and accountants, together with the names of the relevant
partners dealing with the Company;
- risk management procedures and disaster plan;
- company organisation chart and management succession
- copies of all management accounts since the last accounts
- details of the Company's five largest customers,
together with the business done with those organisations over
the last 5 years;
- details of the Company's five largest
- policies on health and safety, environmental, whistle
blowing and discrimination, charitable and fiscal
A Director should also be aware of his legal duties. There are seven statutory duties owed by all directors to their company:-
- To act in the way most likely to promote the success of
- To act within their powers;
- To act independently;
- To exercise reasonable skill and care;
- To avoid conflicts on interest;
- Not to accept benefits from third parties; and
- To declare their interests in any transaction.
When companies get into difficulties directors often attempt to defend their conduct by claiming to be unaware of the situation. To protect themselves directors need to ensure they are well informed on all areas of the company's affairs and should ensure that proper reporting procedures are in place. Ignoring difficult issues will not allow directors to escape personal liability for breach of their duties.
If you have any queries in relation to becoming a Director of a Company, please contact Catherine Feechan.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.