The risk that directors can manage the company in their own interest is high. Those firms that have expanded they require more complex organizational structures (Gevurtz 2004, p. 106). Apart from that, there is the need for the workforce, which possesses knowledge in different fields of expertise. Owing to this, directors are expected to perform several roles and activities. They should cope with their duties professionally (Bainbridge 2002, p. 8). The board of directors plays a vital role in any company. It is involved in company law development, as well as its corporate governance structure (Russell 2011, p. 4). Nowadays, directors have the duty of ensuring that there is high performance in the firm. In some instances, they may be involved in various scandals ranging from fraud to poor management (Organization for Economic Corporation and Development 2009, p. 41). Therefore, there is the possibility of the risk due to most problems involving the management of companies are caused by directors (Lowry 2012). They are also a source of providing solutions to these problems. The purpose of this essay is to evaluate how well the general statutory duties outlined in the Companies Act 2006, Part 10 can guide against the risk that directors can manage the company in their own interest. These regulations prevent such a kind of risk and provide a clear guideline on how these members of the firm should perform their duties.
Company Law Analysis
Several relations emerge within any company (Russell 2011, p. 9). The first exists between a director and shareholder. There is also a director-to-director relation, as well as the one involving a director and executive. The former is entrusted by shareholders with the responsibilities that concern company functioning. In order for the director to win the trust of shareholders, he has to show that the company has the latter in mind (Russell 2011, p. 7). It will help in ensuring that the firm is moving forward (Gevurtz 2004, p. 121). He or she should also work closely with other directors, as well as executives for the affairs of the company to run smoothly. Although it is easy to be a director, but at the same time difficult to be a responsible one (Lowry 2012). The latter is possible, when one uses his or her talent to the benefit of the company. It also entails having a clear understanding of the rising legal obligations as well as responsibilities that the director has. The failure to do this can lead to legal actions as stipulated by the Companies Act 2010. Owing to this, the director may be discharged (Russell 2011, p. 4).
The Companies Act 2006 seeks to promote better management standards in a company (Organization for Economic Corporation and Development 2009, p. 41). The initial aim of this document was to curb irresponsible directors. However, these laws have extended directors’ responsibilities. The act also increases the likelihood of directors experiencing personal liability (Russell 2011, p. 8). The Companies Act 2006enables them to act cautiously, due to they are made liable for their actions. Directors have the duty to ensure that they are supplied with enough information that will help them in knowing whether they act legally or not (Gevurtz 2004, p. 99). They are aware that any mistake can cost their job. In order to protect themselves from incurring personal liability, it is essential to ensure that they act in line with the provisions of the Companies Act 2006 (Russell 2011, p. 12).
A company can be defined as a legal entity that is formed by individuals, who come into an agreement (Russell 2011, p. 14). The latter is commonly called a memorandum. According to the Companies Act 2006, a single person is entitled to form a company. Directors are the main decision-makers in regard with changing the business. However, any decision made should not affect the members. In case the company is limited, the liability for its debt is not directed to the members (Organization for Economic Corporation and Development 2009, p. 41). Most firms are public limited ones. All these companies are private. They have strict rules aimed at protecting the public (Russell 2011, p. 9). Their members entrust directors with the management of the company, considering both its daily activities and policy decision. Their powers are clearly outlined. If directors act without exceeding the above, they are not liable for the debts of the company and vice versa (Russell 2011, p. 4). They can also be liable in the event they are irresponsible or involved in fraudulent activities.
The director is trusted to control the company’s assets. Prior to his or her appointment, the one has to meet all requirements (Russell 2011, p. 6). He should be aware that in case any problem arises in the future, he will be made accountable. The director should ensure that he performs his/her duties for company’s success (Lowry 2008, p. 87). He should be aware that any decision made has its own consequences. It will ensure success. Director’s decisions should take care of employees’ interest. It will ensure a good working relationship in the company. The director also has the responsibility of fostering the business relationship with customers, suppliers, as well as other stakeholders (Russell 2011, p. 18). Therefore, he should make fair decisions within the company and ensure that it has a reputation for meeting high standards while conducting the business (Gevurtz 2004, p. 126). The act also calls for directors to ensure that the purpose of the company is met. Doing so, the risk of managers acting irresponsibly will be greatly reduced.
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The Companies Act 2006 requires directors to ensure that they act diligently to avoid future problems that may face the company (Russell 2011, p. 16). They must prevent any interference with the services they offer to the company, as well as their personal duties. Breaching these has negative consequences. The actions of directors should not interfere with the running of the company (Organization for Economic Corporation and Development 2009, p. 43). Shareholders have the right to file a case against the director, if they feel that he/she acts irresponsibly (Lowry 2008, p. 90). The latter may make decisions, which can upset the former. Thus, he has the duty to assure shareholders of his interest in them. The act has a provision, which outlines this point and requires directors to have interest in creditors, especially if the company is close to being insolvent or already such (Russell 2011, p. 5).
The director should ensure that he makes a sound judgment, should be loyal and adhere fully to the provisions of the act (Russell 2011, p. 12). There are several statutory obligations, with which directors are expected to comply. Once they fail to adhere to these, they are likely to face fines (Gevurtz 2004, p. 97). The director can even lose his/her job, continuing engaging in such actions. Everything that the company is entitled to do is at the disposal of the manager (Lowry 2012). The duties of the latter include managing finances, as well as maintaining statutory books. The protection of the company’s asset is another responsibility of the director. The act also provides that the one has the duty to improvise systems that are aimed at preventing fraud in the company (Russell 2011, p. 14).
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If directors manage to keep accounting records in the right manner, cases of fraud are likely to be reduced. The above documents must include and explain transactions of the company, as well as its financial position (Bainbridge 2002, p. 4). Through this, the director will be able to have adequate information that may be used to defend him/herself in case there is a problem in the company (Russell 2011, p. 21). Apart from that, the one will be able to have receipts of all transactions made within the organization. If directors manage to keep proper accounting records, they will be able to deal with a crisis in the company.
In case the company incurs debts, the director will be able to give evidence (Organization for Economic Corporation and Development 2009, p. 41). Through this, he will act according to the set standards outlined in the act (Russell 2011, p. 19). Proper accounting records are essential, when the director holds a meeting with shareholders. He/she will be able to give a report on losses, as well as profits made by the company at a particular time period. It can prevent him or her from facing criminal charges in case there is a problem (Organization for Economic Corporation and Development 2009, p. 41). To satisfy shareholders, the act requires directors to ensure that the company’s accounting annual report is online (Gevurtz 2004, p. 124). The responsibility of keeping proper financial records is also in their hands. If they fail to do this, it will lead to the penalization of the company. Its director will also be fined (Lowry 2012).
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The maintenance of statutory books should be also under control of directors (Russell 2011, p. 18). These documents are supposed to be kept in registered offices within the company. They entail member, director and secretary registers, mortgage and charges reports, among other records (Bainbridge 2002, p. 3). It is important to store shareholder meeting minutes. Thus, directors should be cautious in doing this, due to the failure to maintain these books will make them liable for any problem emerging (Russell 2011, p. 14). Since every action has its consequences, the act provides directors a clear guide on how they should operate (Organization for Economic Corporation and Development 2009, p. 43). They should comply with the time set for a board meeting to be held within the company, and the number of directors, who participate in it (Gevurtz 2004, p. 101). Owing to this provision, directors have the responsibility of ensuring that meetings are held at the right time. Each one of them should have an agenda it aims to address.
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Compliance with legal obligations calls for the collective performance of certain acts. The director should notify everybody, who is supposed to attend a meeting (Russell 2011, p. 17). As a result of this, there will be no complaints that some members have been left out. When it comes to financial management, directors are faced with personal liability in case the company fails to pay its debt (Lowry 2012). It concerns irresponsible directors. Under the act, managers are also liable for any act of fraud. The director can be disqualified, if he is found to have been involved in fraud.
According to the Companies Act 2006, the company law governs the meeting with a stakeholder. It is formal unlike the meeting of directors (Organization for Economic Corporation and Development 2009, p. 41). The act requires that all its minutes must be noted, and a copy of the passed resolution should be added to the company’s registrar (Russell 2011, p. 20). The meeting is supposed to be called by the director, but under special circumstances, a member can do this (Bainbridge 2002, p.6). In private limited companies, an annual general meeting should be held every six months. It is meant to present shareholders with audited accounts. This meeting also offers an opportunity for elections in the company (Russell 2011, p. 12). The Companies Act 2006 also indicates that the chairman of the board of directors should lead the meeting with stakeholders.
According to the act, there must be the approval of the shareholder in case the director wants to take a loan from the company (Russell 2011, p. 6). It is essential, due to it prevents cases of fraud. It concerns companies registered in England and Wales. To make sure that directors act in the right way, the act requires them not to be compensated, if they happen to lose their job due to mismanagement (Gevurtz 2004, p. 97). The laws provide that if the director breaches his statutory duties, he should face legal action. This provision prevents the one from committing such a crime (Bainbridge 2002, p. 4). The only time that the director is exempted from this is when he has acted in an honest and reasonable manner. He or she is also liable to imprisonment, as well as the loss of job, if the published finance report is not correct (Lowry 2012).
In case the stakeholder undergoes a loss resulting from the director’s action, the latter is personally liable (Russell 2011, p. 7). Directors are also required to ensure that transactions of the business are done by the authorized person (Foster Bryant Surveying Limited v Bryant  EWCA Civ 200, para.25). It is the requirement of the finance service legislation. The failure to that would make the director face liability. Moreover, if there is a case of dishonesty connected with VAT evasion, he or she is also made liable (Organization for Economic Corporation and Development 2009, 42).
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In conclusion, any form of fraud trade between the company and creditors will make the director liable. It will lead to ten years of imprisonment. Therefore, the only option that the one has is to act according to the law (Gevurtz 2004, p. 123). Pursuant to the Companies Act 2006, the director shall be disqualified due to fraud cases against him or her. The one should ensure that he or she conducts himself or herself with honesty and integrity to avoid being on the wrong side of the law (Bainbridge 2002, p. 10). Therefore, the general statutory duties outlined in the act guarantee the prevention of the risk that directors can manage the company pursuing their own interests.