When it comes to setting up a company, there are lots of decisions involved. What is your company name? Who are the shareholders? Who are the directors? In answering these questions, even more questions arise! For directors specifically, there will be more questions about the level of involvement, the salary, the speciality focus and duties involved.
To help you navigate through these questions, this blog briefly discusses the role of directors and outlines the key differences between executive and non-executive directors.
Introduction: The Board of Directors
The board of directors oversee the management of the company’s business. The board will often be made up of different types of director. The most common types are an executive director and non-executive director.
Together, the board makes strategic and operational decisions whilst ensuring compliance with statutory obligations. A director will participate in board meetings to reach and implement company decisions.
The duty of a director is to the company. Directors must act honestly, in good faith and in the best interests of the company and its members.
The statutory duties imposed on directors are as follows:
- To act within their powers
- To act in good faith to promote the success of the company
- To exercise independent judgement
- To exercise reasonable care, skill and diligence
- To avoid any conflicts of interest
- Not to accept benefits from third parties
- To declare any personal interest in a proposed transaction or arrangement with the company
It is important to note that the statutory duties, responsibilities and liabilities apply equally to executive and non-executive directors.
Executive directors generally spend all or most of their time working on the day-to-day management of company business. These activities include implementing board decisions, asset management, entering into contracts and managing employees.
Executive directors will be employees of the company, have service contracts and will receive remuneration in the form of a salary.
Executive directors may be given official titles such as Managing Director, Finance Director or Sales Director. However, when making decisions with their fellow directors, an executive director must consider the company as a whole rather than focusing their perspective on their functional role.
A non-executive director is a member of a company’s board of directors but does not participate in the day-to-day management of company business. Their primary role is to attend and vote at board meetings. Non-executive directors are not employees of the company and do not receive a salary. Any payment made to the non-executive director would be in the form of directors’ service fees.
A non-executive director may be appointed to the board to carry out a specialist role, for example contract negotiation, or the provide expert advice and mentor others. Specialist knowledge, business experience and a strong reputation can benefit the board by providing valuable insights and important business contacts.
By not being involved in the day-to-day business, a non-executive director can have a more objective and independent view of the company and help to guide and monitor management. This is vital for acting in the best interests of the company and can help with analysing and advising on strategy, performance, accountability and risk.
This blog is provided for general information purposes only. Nothing in this blog constitutes legal or other professional advice. The content of the blogs published on this website are current as of their original date of publication but should not be relied upon as accurate or suitable for any particular purpose. Professional legal advice should always be sought before relying on, or taking action relating to, the content of this article.