Who does a Director owe duties to?

Who does a Director owe duties to?

While being invited to join a Board is exciting and definitely a step-up for many, tread with care. Directors have duties and responsibilities, and you should be aware of these before you join a Board.

Your fiduciary duties as a director reflect a relationship of trust and loyalty between yourself, the company, its members, and stakeholders. The expectation is that you will act in good faith, and in the best interests of the company.

Before you agree to become a director, you need to understand to whom you owe duties.

1. The Company is the most obvious candidate. Note though that the director’s duties are owed to the Company itself and not individual members. If the director fails in this duty, he may be sued by the Company, and this happens regularly.

2. Shareholders are also owed duties by the directors. After all, it is their investment that has allowed the company to operate.

3. The interests of Employees must also be taken into consideration by a director while making decisions in office.

4. Creditors are another group the directors must pay heed to. This is particularly so when the company is nearing or is in an insolvent position. In such a situation, creditors’ interests may trump those of all others.

What are the consequences of failing in these duties?

If loss or damage has been suffered by a shareholder, creditor, or the company, they can take action against you personally, but it is often the case that the company as an entity pursues directors who have failed in their fiduciary duty.

If you need professional guidance on your fiduciary duties as a director or are unsure whether a conflict of interest has occurred, we are here to help.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: 

walter@silvesterlegal.com or info@silvesterlegal.com.

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