Directors'responsibilities

2. Exercising Directors' Powers

Check what limits there are on directors' activities in your company.

2.1 You must pursue the objectives listed in the Memorandum of Association.

• Most companies list a wide range of objectives ('objects') to give directors the flexibility to carry out any type of business.
• Some companies list only specific objectives.
• If the directors act outside the company's objects, the company may have an action against them.
• You can only change the company's objectives by getting shareholder agreement to a new Memorandum.

2.2 You must act within the powers granted in the Memorandum and Articles of Association.

• The Memorandum normally sets out a list of powers which the directors may exercise in pursuing the objective(s) of the company.
• The Articles of Association define the rules governing the directors.

2.3 In exercising directors' powers, you are required to exhibit 'such a degree of skill as may reasonably be expected' from a person with your knowledge and experience.

• For example, a chartered accountant might be expected to know if the company was trading while insolvent.

2.4 You must also exercise a degree of care in your actions as a director.

• The test of an acceptable level of care is what a reasonable person would do in looking after their own affairs.
• You are generally not liable for the actions of your fellow directors, if you knew nothing about them and took no part in them, but you have a duty to make sure you are informed about the company's affairs - it is very dangerous to turn a blind eye.