Almost everyone dreams of becoming an entrepreneur and running a company. Some kickoff their journey as a sole trader, while others prefer bringing in investors. Undoubtedly, it is an incredible way to raise capital for any business. Investors buy a small share in the company’s ownership to get a small percentage from profits in the shape of dividends. However, it doesn’t mean that investors would be managing or running the company.
A company comprises two bodies of people – shareholders and board of directors. Shareholders are the people who have a share in ownership, while the board of directors is in charge of the company’s management. They work in shareholder’s interests and make every strategic decision for the company. Similarly, directors ensure that the company is meeting legal and statutory obligations. Therefore, if you aspire to run a company, participate in affairs as a director.
From attending board meetings, fulfilling obligations to managing day-to-day affairs – directors work for the company’s benefits. If you want to explore this arena further, have a look below. Here we are unfolding the director’s responsibilities for managing the corporate affairs of the company.
Comply with Legal Obligations
Usually, every company has three directors, out of which two must be a resident of the same region. With the ever-growing amount of legislation, it is imperative to ensure regulatory compliance. Directors prepare compliance strategies regarding the corporate infrastructure to safeguard a secure framework of information. Likewise, they form an in-house legal counsel to verify if the company is running as per law, saving you from penalties.
Moreover, the team oversees documentation, tax filings, and financial reports, ensuring compliance with accounting standards. They also give insights into the firm’s risk to overcome all regulatory issues. In addition to this, a resident director oversees the company’s relationship with third parties by following the Company Act 2001. They sign filing documents for regulatory authorities – ASIC, ATO, and give suggestions about the corporate world’s legal and financial landscape.
Promote Company’s Success
Despite shareholder’s hunger for higher dividends, directors have to consider factors that can promote its success. Before anything else, you have to distinguish the risks associated with that decision. If you are thinking of getting a bank loan for a new plant, perform a cost-benefit analysis. The new plant might increase production capacity by 50%, don’t forget about the rising interest rates. After all, it is crucial to recognize the consequences of decisions in the long-term.
At the same time, directors have to foster relationships with suppliers, customers, and other market players. If you are a part of the chemical or manufacturing industry, consider the company’s impact on the community and environment. All these things reflect responsible business behavior, fundamental for promoting a company’s success.
Prevent Insider Trading
Do you know how insider trading works? A person leaks confidential information that has a material effect on share pricing. It is an offense as the person communicates information to a third party who has no right to know. A director is responsible for inhibiting insider trading. You can either appoint an in-house watchdog or ask employees to submit clearance requests for covered securities trades. Similarly, educate employees regarding the penalties of insider trading.
In case you detect instances of insider trading, directors have the authority to put employees under scrutiny. Whether it was a single incident or not, conduct investigations to judge similar trading patterns. It will help in determining the information employee used to trade, eliminating potential liabilities. Alongside this, you can start maintaining records to prove the fulfillment of your legal duties. Record all the board’s decision-making process by taking minutes of the meeting.
Exercise Independent Judgement
Some people see directors as delegates who are following the commands of other parties. Indeed, dominant shareholders have a strong influence on directors, but it is not legal. The law recognizes directors as ‘independent’ individuals who have the authority to exercise independent judgments. Hence, directors should hold the power to make sovereign decisions by using their knowledge and judgment. You have to develop your perspective on the company’s activities and act in its best interests.
However, you can accept advice from others and reach out to professionals for suggestions. When making the closing decision, you have to consider the company’s interest and believe in yourself. Moreover, directors can’t pass on their decision-making role to anyone else. If any shareholder is pressurizing a director directly or indirectly, try to report it to the board.
Prevent Conflicts of Interests
As a director, you have a position of trust in the organization. Therefore, you have to stay away from situations where the company’s interest conflicts with yours. At times, you can encounter conflict between duties to the company and personal interests. For instance, you might be working as an advisor for a competitor of your company. Instead of letting the company suffer any detriment, the director has to keep personal comforts aside.
Nevertheless, avoiding conflict is not possible every time. The company Act 2001 provides scenarios in which companies can pre-empt the conflicts by excusing the director. It means the shareholders will vote in favor of a contract in which the director has an interest. But it only becomes possible if the director opts for disclosure or comes clean in front of the owners. Besides, if you ever get stuck in a potential conflict solution, seek approval. If the board doesn’t have authority, it can refer the matter to shareholders for resolution.
Avoid Insolvent Trading
Operating a company is no fun and games. Directors come across challenging situations where they have to ensure survival. If the company is unable to pay debts when due, it becomes insolvent. Instead of giving up or selling the company, directors have to pull it out of the crisis. They have to prevent the company from trading while insolvent. Are you wondering how?
Since September 2017, directors have the protection of a legislative carve-out that prevents companies from insolvent trading. It helps prepare a course of action that will lead to a better outcome than voluntary administration. It gives ample time to directors to formulate a strategy and save the company from the insolvency trap.
Final Thoughts:
Taking a center on a company board of directors is ideal for giving your career a real boost. Rather than following instructions, you will be the one establishing goals and vision. It lets you manage an entire organization and make critical decisions without the need to own a company. In addition to boosting your industry knowledge, it maximizes professional opportunities and scope. It exposes you to different challenges and responsibilities that can enhance your skills and expertise.
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