Question

What are the three main duties of directors and why are they necessary?

Answer 1

Director's duties are series of statutory, common law and equitable obligations owned primarily by members of the Board of Directors to the Corporation that employs them.

Among different jurisdictions, a number of similarities between framework for directors duties exit.

• directors owe duties to the corporation and not to the individuals shareholders, employees or creditors outside.
• directors core duty is to remain loyal to the company and avoid conflicts of interest.
• directors are expected to act in good faith to promote the success of the corporation.

Duties of Directors

A Director's duty is owned first and foremost to the corporation. This duty is grounded in basic principles of good faith, stewardship and accountability. Requirement imposed both by common law and various statutes seek to establish the parameters of this duty.

1. To Whom are Directors Accountable?

Directors are required by corporate statutes to discharge their duties with a view to the best interests of the corporation.

2. Directors duty to the interest of the shareholders -

directors owe a duty to the corporation and not its individual shareholders.

3. Director's duty to the interest of other Stakeholders -

Stakeholders means employees, shareholders, creditors, suppliers or communities. Directors recognize that their decisions have an impact beyond the corporation and its shareholers. Employees and the community will be affected by a decision to a close plant. Directors may feel a responsibility to consider the interests of these stakeholders.

Why are they necessary?

The General duties are important mainly because a failure by director to comply with any of the general duties has potentially serious consequences for that directors, namely to the exposure to the personal liability. Such liability arise when a director permits the company to trade wrongfully or where a director has made a personal gain from knowledge about the company affairs which was not generally available to its members that is Insider trading and circumstances where a breach of duties.