Company officers and their duties

And another paper I had to deliver for my College's corporate governance module ....

COMPANY OFFICERS AND THEIR DUTIES

Under the Companies Acts 1963-2013, a company is a legal body separate from the individuals who make up the membership of the company created to run a business or social enterprise. A company can make contracts, own property, have debts and take legal action (Government of Ireland, 1963-2013).

The following will provide an introduction to the roles of directors and secretaries and their duties. Every company must have at least two directors  which not necessarily need to be members of the company and every company must have a company secretary  who may be one of the directors. Directors are chosen by the company’s members to manage the company on their behalf while the secretary’s main role is to make sure that the company’s business is conducted under the aspects of the current company law (ODCE, 2011a, p. 10).

COMPANY DIRECTORS

A company director’s duties are very broad and comprehensive as they develop essentially from two origins - statute and common law (ODCE, 2011b). In the following a director’s duties originating in common law will be summarised.

FIDUCIARY DUTIES

Following The Right Honourable Lord Millet a ‘fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence’ (Mothew (t/a Stapley & Co) v Bristol & West Building Society, 1996). As Lord Millet expressed, a fiduciary epitomizes the obligation of extreme loyalty towards the person or organisation the duty is owed to. Directors are expected to fulfil their duties in good faith to the best of the organisation and not to misuse their powers. It is a director’s primary duty to act in what he honestly believes to be in the company’s interest as a whole, rather than in a particular member’s interest. The director’s honesty in what he believes, and not what the court believes, to be in the best interest of the company is of great significance here and must be distinguished from his non-fiduciary duty to observe reasonable care, skill and diligence.

THE DUTY TO EXERCISE DUE CARE, SKILL AND DILIGENCE

A director is committed to exercise his duties with due care, skill and diligence as he is liable for all losses from his neglectful doing. Under common law he would not be held liable for misjudgements, but for gross negligence. As a director would normally have a higher degree of expertise a higher standard of competence is expected of him in controlling the company affairs. However, his actions are only judged in the context of what a reasonably judicious person with the same knowledge and skills would have done in a comparable situation (Redmond, 2014).

In situations where a director misused his power, any of his actions taken would be void but could be agreed to by a general meeting of the company members afterwards.

THE DUTY NOT TO MAKE UNDISCLOSED PROFITS

Directors must not make undisclosed profits from their position as directors and have to disclose any gains they secretly accept due to their function as director. Being involved in a business competing with the company they represent as a director is not automatically considered a breach of their duties as a director, but it may be considered as a breach of a director’s duty of fidelity and loyalty to the company if the director has a contract of employment or a service contract with the organisation (Redmond, 2014).

However, a director must generally avoid situations from which a conflict of interest may result unless these situations are disclosed to the company. Contraventions may result in the obligation to render up the yield they earned as a result of their position as a director.

COMPANY SECRETARIES

The role of a company secretary evolved greatly in recent years from being only a “note taker“ or “administrative servant” to a much wider role of a kind of advisor to the board of directors, having responsibility for the company’s corporate governance belongings. Beside that, main functions are, for example, the daily administrational tasks. Even though the Companies Acts inflict several statutory duties on a company secretary, these are rather not their exclusive responsibility, but more likely inclined to be obligations that are handled by the secretary and a director. For example, is the ‘signing the annual return’ a duty which also needs to be completed by a director of the company. A company secretary’s main tasks apart from the statutory duties are delineated below.

THE DUTY OF DISCLOSURE

A company secretary is accountable for the disclosure of specific information to be included in the ‘Register of Directors and Secretary’ and the ‘Register of Directors’ and Secretary’s Interests. This information comprises:

• name
• address
• registered office address (if the secretary is itself a company)
• interests held in shares and debentures of the company i.e. number and amount, and
• details of any shares or debentures purchased or sold in the company, its holding company, any subsidiary or any subsidiary of its holding company.

THE DUTY TO EXERCISE DUE CARE, SKILL AND DILIGENCE

A company secretary’s duty to exercise due care, skill and diligence is very similar not to say of the same origin than the same duty of company directors. He or she will only be held liable for losses resulting from negligent behaviour. Therefore a secretary does not need to exert a higher grade of diligence than to be reasonably expected from a person with their level of knowledge and experience.

ADMINISTRATIVE TASKS

The maintenance of the company’s statutory registers and minute books is usually one of the duties of a company secretary as is often the responsibility and custody of the company’s seal.

The annual general meeting is one of the most important in the fiscal year, as it is usually the only meeting when members and directors meet. The secretary is normally the one to make sure that all requirements, for example notice requirements, are met, which is of substantial significance as failing these requirements may be lead to invalidating resolutions (James, 2012).

Preparing and forwarding the ‘board packs’, agenda, ‘minutes’, papers or accounts which are to be sent to the directors before scheduled board meetings, is one of the secretary’s tasks in which he or she will normally follow the chairman’s instructions.

The task of ‘minute taking’ is normally a task of the secretary. As ‘minutes’ do not have a legal status and are considered to be only a ‘draft’ until approved and signed by the chairman, the form of these ‘minutes’ is to be determined by the board. After the approval of the board and being signed by the chairman, these ‘minutes’ become officially the minutes of the meeting and cannot be altered afterwards (ODCE, 2011c, pp. 6-7).

The increased burden that is laid on a company secretary allows to say that the company secretary has evolved into a kind of guardian of the company’s compliance with legal requirements, which is the inference of the vast number of other duties and tasks with the emphasis on legal requirements including the information of the Board about new legislation and how this concerns the company (Deloitte, 2014).

REFERENCES

Deloitte, 2014. The changing role of the company secretary. [Online] Available at: http://www2.deloitte.com/ie/en/pages/legal/articles/changing-role-secretary.html [Accessed 08 12 2014].

Government of Ireland, 1963-2013. Companies Act, 1963-2013. Dublin: Stationery Office.

James, J. H., 2012. The Role of the Company Secretary. [Online] Available at: http://knowledgenet.carmichaelcentre.ie/articles/role-company-secretary [Accessed 08 12 2014].

Mothew (t/a Stapley & Co) v Bristol & West Building Society (1996).

ODCE, 2011a. Information Book 1: The Principal Duties and Powers of Companies. Dublin: Office of the Director of Corporate Enforcement.

ODCE, 2011b. Information Book 2: The Principal Duties and Powers of Company Directors. Dublin: Office of the Director of Corporate Enforcement.

ODCE, 2011c. Information Book 3: The Principal Duties and Powers of Company Secretaries. Dublin: Office of the Director of Corporate Enforcement.

Redmond, A., 2014. Powers & Obligations. [Online] Available at: http://www.solicitor.net/company-commercial/powers-obligations.126.html [Accessed 08 12 2014].