The specific powers, rights, duties and obligations of company directors are determined by the company's constitution, if there is one, and by the COMPANIES ACT 1993. If there is no constitution then these matters are determined by the Act.
The law has developed a set of rules, known as "directors duties", that limit the ways in which directors can exercise their rights and powers by outlining the minimum standard of behaviour that is expected of them. These are contained in the COMPANIES ACT 1993 and in decisions of the courts, and they are outlined below.
These rules strike a balance between, on the one hand, not hindering directors in the performance of their roles by placing too much control on them, and on the other, not allowing directors to have uncontrolled discretion.
Directors act as agents for the company and therefore all their actions should be taken with the company in mind. Because of this agency relationship, directors have a "fiduciary" obligation to both the company and the shareholders, which means that a director is in a special position of trust.
One of the most important duties of company directors is to act in good faith and in the interests of the company. There are a number of specific obligations that are related to this:
As employer for the company, a director must have regard to and take into account the interests of the company's employees.
Whenever you exercise a power or perform a duty as a company director, you are under a duty of care and skill. This means that you must exercise the care, diligence, and skill that a reasonable director would exercise in the same circumstances, taking into account, among other things, the nature of the company and the particular decision.
This is a high standard, and the courts will not find it to be breached merely because of an error in judgement. In performing their duties, a director is not required to exhibit a greater degree of skill than may be reasonably expected of a person with his or her knowledge and experience.
The shareholders of a company have a collective right to bring an action in the courts against a company director if they have legitimate reasons for doing so, which would include a breach of any of the duties outlined above.
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