Download our free guide to understand your corporate governance responsibilities.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n
As is true for any business, a company will face risks and challenges while trading. These could involve taking on debts to finance the business, facing challenges with customers and suppliers, challenges with shareholders, or regulatory compliance issues, such as claims of false and misleading conduct<\/a> in respect of its products.<\/p>\n<\/div>\n\n\n\n A company is a legal entity<\/a> that is separate from its owners and directors. A company can take many of the same actions that an individual can take, such as: <\/p>\n\n\n\n Being a separate legal entity, a company will have its own bank account, IRD tax obligations and administrative requirements. From a legal and practical perspective, the company structure provides a degree of separation between the owner\u2019s personal bank accounts and company bank accounts. Creditors can usually only claim against the company\u2019s assets, not the personal assets of the company\u2019s owners.<\/p>\n\n\n\n The two key parties involved in a company are its directors and shareholders. Directors manage the day-to-day operations of the business and its affairs. Shareholders are the owners of the company, who hold a percentage of the shares in the company.<\/p>\n\n\n\n Usually, the shareholders only passively hold their shares in a company and are largely uninvolved in the company\u2019s day-to-day affairs. The directors are responsible for the company\u2019s actions and decisions and for any business risk. As such, directors need to ensure that they have complied with their directors duties and have acted in the best interests of the company. Otherwise, they may face personal liability for breach of their directors duties.<\/p>\n\n\n\n Directors of a company are legally responsible for certain duties<\/a> they owe to the company. A director of a company must:<\/p>\n\n\n\n It is important for business owners who are company directors to comply with these legal responsibilities. The duties to act in good faith and exercise due care and diligence require directors to act with a degree of commercial acumen in managing the business while being focused on its success and continuity. The duty to avoid reckless trading requires directors to ensure that if the company takes on any obligations (for example, taking out a loan), they must be sure the company is in a position to meet the demands of the loan.<\/p>\n\n\n\n A breach of any of the directors duties can result in penalties and personal liability for the directors. Silent or absent directors will not receive any leniency for a breach of their director duties. Therefore, it is important for all directors to be aware of these duties and actively take part in the company\u2019s business and understand its financial position. <\/p>\n\n\n What is a Company?<\/h2>\n\n\n\n
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Directors\u2019 Duties<\/h2>\n\n\n\n
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\n Corporate Governance Guide for SMEs in NZ<\/div>\n \n