Business mentor: Sitting in a director's chair brings responsibilities

I've been approached by a former colleague who has just set up a new company and asked if I would join her board of directors. I am keen to help her out but I am not sure exactly what my responsibilities are. Can you give me an overview of what I'd be taking on?

Small business sector specialist Sarah Trotman talked to Staples Rodway director Gareth Hoole for some advice:

A large number of businesses are operating as companies and, since the Companies Act 1993, they only need to have one director, however, they may have more than one.

First and foremost, the director is responsible for ensuring the smooth running of the company. Individual directors must act in good faith and in the best interests of the company at all times. This duty must over-ride personal interests or the interests of shareholders.

Directors cannot allow the company to be operated in a manner that will cause a loss to the company's creditors. A director can be held personally liable if debts are being incurred in the company's name and it does not have the ability to pay.

Directors must act honestly and should not use the information gained through their position to improve their own personal circumstances.

The law doesn't treat a director any differently whether the company is a major public company or private company.

Directors in owner-operated small businesses who don't take the time to review their financial position, or are having financial accounts prepared months later, are in real danger of neglecting their duties. The popular misconception is that the "Limited" associated with companies means they are protected. Directors can still be held personally liable if they trade recklessly.

A word of caution to people in relationships: Don't become a director in a business with your partner unless you are going to have a say in the running of the business and you are prepared to remain fully informed at all times.

Minutes must be kept of all directors' meetings. Directors may be required to defend decisions made at meetings some years later. So, they should also make their own notes and keep all board papers, minutes, file notes and the director's own record of meetings and correspondence for at least seven years. As part of their duties, they must ensure that all company records are secure for the same period of time.

As a director, your responsibilities are in relation to all aspects of the business, not just financial.

* Further questions can be directed to Gareth Hoole on 09 309 0463 or by clicking on the link below.