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Duty to promote the success of the company

Promoting your company

The Companies Act provides that a director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

In so doing, the director must have regard (among other matters) to:

  • the likely consequences of any decision in the long term;
  • the interests of the company’s employees;
  • the need to foster the company’s business relationships with suppliers, customers and others;
  • the impact of the company’s operations on the community and the, environment;
  • the desirability of the company maintaining a reputation for high standards of business conduct; and
  • The need to act fairly as between the members of the company.

It should be noted that:

  • The duty applies to all decisions made by a director, not merely formal decisions made by the whole board;
  • “Success” is not defined. It is thought that “success” in this context will usually mean “long-term increase in value” for commercial companies, and that what will promote the success of the company, and what constitutes such success, will be matters for the director’s good faith judgment; the obligation to have regard to the listed factors is subordinate to the overarching duty to promote the success of the company for the benefit of its members as a whole.
  • However, the obligation to have regard to at least the listed factors, in carrying out the overarching duty, is mandatory; the list of factors is not exhaustive – directors should have regard to other matters relevant to the duty to promote the success of the company; and in having regard to the listed factors, the duty to exercise reasonable care, skill and diligence will apply.
  • In some cases, to satisfy the duty, it may be necessary to seek expert advice, for example in relation to impact on the community or environment.

Do you as a company director carry out your duties with this in mind?

Are you working too much in the business to have full regard for fulfilling this duty?

If not it is time to make that initial no cost, no obligation appointment with John Barnes.

 

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