Corporate Law – Directors and Articles of Association, what do we need to know?

28th October 2024

Understanding the role of directors and the articles of association is essential for anyone involved in corporate law or running a company.

Directors are appointed to manage a company’s day-to-day operations. Their primary responsibilities include acting in the best interest of the company, exercising care and diligence, and avoiding conflicts of interest. Directors have a fiduciary duty to shareholders, meaning they must prioritise the company’s welfare over their personal interests. Additionally, they are responsible for ensuring the company’s compliance with relevant laws and regulations, including financial reporting, corporate governance, and statutory obligations.

The articles of association are a vital document that outlines how the company operates internally and third parties. This document sets out the rights and responsibilities of directors, shareholders, and other stakeholders. It typically covers important aspects like how directors are appointed and removed, how meetings are conducted, and the voting rights of shareholders. The articles must comply with the laws of the jurisdiction where the company is registered, and they can be changed as needed, usually with the approval of the shareholders. Another example of the effects of articles of associations on how a company operates are the “Objects” these are now often removed from the articles but in the past they were prevalent, whilst many may view them as simply setting out what the company aims to do they can also place restrictions on the directors as to what they can do with consequences if they are deemed as operating in breach of them.

Both directors and the articles of association must adhere to the law and regulations governing them. If they don’t, there can be serious consequences, including fines, disqualification of directors, and damage to the company’s reputation.

In summary, knowing the roles of directors and the importance of the articles of association is crucial for good corporate governance. Directors need to do their jobs diligently, while the articles serve as the foundational document guiding the company’s operations. Being familiar with these elements is essential for anyone involved in managing or advising a company.

If you have any questions regarding your position as a director, your company’s articles of association or company law, do not hesitate to take legal advice. As we highlight above, the consequences of it going wrong can be serious.

Please contact our expert Corporate Commercial Law team if you require further advice on the above.

Article written by Commercial Assistant Lara Kljajic and Corporate Commercial Solicitor Kyle Smith.