Temporary notes (from PA)
Within a business there a number of different roles, all of which are vital to day-to-day operations. From entry-level employees to seniorexecutives, it is important to understand the duties and responsibilities of each role in order to ensure every employee works together towards thecompany’s success. We are going to look at 4 key roles; all very different but each equally important.
A director is the most senior full time executive in charge of the company and they are responsiblefor the management and day-to-day running of the business - it goes without saying that when it comes to company performance, the buck stops with theDirector. The director must act in the best interests of the company – not the shareholders, and it is important to note that he/she cannot become amouthpiece for the shareholders.
There are a number of fundamental and substantial differences between the role of a director and that of a company manager. According toGov.uk, the law says that the director of a limited company must:
- follow the company’s rules as shown in its articles of association
- maintain company records and report changes to CompaniesHouse and HM Revenue and Customs
- file accounts and Company Tax Return
- inform other shareholders if they might personally benefit from a transaction that the company makes
-Make decisions for the benefit of the company, not themselves
- pay Corporation Tax
UK company law defines a number of general legal duties for the Directors of UK companies:
1. The duty to act within powers
Directors must act according to the company’s constitution(eg. The articles of associate and resolutions of general meetings) and shouldonly exercise powers for the purpose with which they have been granted.
2. The duty to promote the success of the company
Directors are expected to act for the company’s best interests, promoting its success for the benefit of its shareholders/members,having regard to:
- the consequences of any decisions in the long term
- the interests of the company’s employees
- a need to foster the company’s business relationships with suppliers, customers etc
- the impact the company’s operations has on the environment and the community
- maintaining the company’s reputation for high standards of business conduct
- the need to act fairly as between members of the company
3. Every Director must exercise his or her independent judgment in his/her decision-making
4. Directors must exercise reasonable care, skill and diligence when carrying out their duties.
5. The Director has a duty to avoid situations in which they could have a direct or indirect conflict of interest with the interests of the company. This is especially relevant in the exploitation of any opportunity, information or property, regardless of whether the company could take advantage of these.
6. Directors must not accept benefits from any third parties unless it is not deemed to case a conflict of interest.
7. The Director has a duty to declare a personal interest, direct or indirect, in a proposed transaction or arrangement with the company.He or She must declare the nature of their interest and the extent of it to the other directors before the transaction or arrangement takes place.
A shareholder in a limited company is an owner of the company whilst a limited company director is appointed by shareholders to manage the business on their behalf. The roles are vastly different but it is possible for one person to assume both roles. However, not every company owner or entrepreneur has management experience and it is vital that the business is not viewed as a personal asset; the business is a unique business entity and not a personal piggy bank. The shareholders are known as members (the first shareholders are called subscribers) and they can be people or a corporate body. They own some or all of the company through shares and their liability is limited to the nominal value of their shares, ie. If the company loses money or gets into debt, the shareholders are only responsible for the value of their shares. The portion of the profits they receive are calculated in relation to their shareholding. As previously discussed, unless prohibited, a shareholder can also be a director. However, unless they are also directors, the shareholders are not involved with the everyday running and management of the business but they do have the power to appoint and dismiss directors and company secretaries. They also have the authority to choose what powers and rights the company directors have. Shareholders make decisions about significant issues such as (but not limited to); the company name ands tructure, investment opportunities, issuing shares, appointing an auditor to inspect the company accounts, appointing or removing a director and changing a director’s powers as well as changing the Articles of Association or theShareholders’ Agreement.
When it comes to business, a stakeholder is defined as aparty that has an interest or ‘stake’ in the business (a stake being an interestin a business and its activities.) This party can effect or be affected by thebusiness (or both). A stakeholder can be internal or external to a business andtraditionally fall into the categories of investors, employees, customers andsuppliers. Stakeholders don’t have to be equity shareholders. If, for example,we are looking at employees as stakeholders, they have a stake in yourcompany’s success and an incentive for it to succeed in order to ensure theyare still employed. Business partners have a stake in your company as they relyon your success to the supply chain working. In most companies the most common gathering of stakeholders is the boardof directors; high-ranking executives or outsiders who hold a large amount ofequity in the company. They have the power to introduce new ideas or disruptdecisions within the company. They can appoint all levels of senior management– including the CEO – and, if necessary, remove them from the company,dictating the future of the business.
Large investors are also regarded as stakeholder, who,depending on the company’s financial performance, will increase or decreasetheir stakes in the business. Some describe them as the guardian angels ofeveryday investors – closely monitoring financial reports and putting pressureon management to make changes when necessary.
Large stakeholders are normally high profile investors andare, in general, keen to avoid companies who disregard human rights andenvironmental laws. They will keep a close eye on your company’s activities,voting against any business decision that they believe to be detrimental to thecompany’s long term goals. This is of course a very broad over view of the roleof stakeholders and their responsibilities.
Whilst a director is the most senior executive in yourbusiness, your most important asset, arguably, is the employee. They are theones who should be working to deliver their best to meet assigned goals andtargets, keeping the business going on a daily basis. As discussed earlier,they are invested in the company’s success – if it fails, they are out of ajob. Every company has set principles and policies which employees must follow;the beliefs and practices of a company form the ‘office culture’ which givesthe employees a sense of direction. Employees play an important part indeciding the culture of a workplace – it is their behaviours, attitudes andinterests at work which form the culture. This work culture is important increating a brand image for the business, setting it apart from its competitors.
These 4 roles must work symbiotically if a business is tosucceed. An understanding of everyone’s responsibilities and duties is vital toensure not just the smooth day-to-day running of the company, but to keep thecompany on track and focussed on the bigger, long term goals.