Directors’ rights and obligations

April 12, 2024




Are you a director of your own company or some other company? Do you know and understand your rights and obligations?

Many directors of small private companies don’t fully understand what the role encompasses. We explain what being a director means for you.

As a director, you are appointed to manage the company’s business and affairs. In New Zealand, the role of a company director carries a wide range of duties and responsibilities. These are outlined in the Companies Act 1993.

As a director you must act in ‘good faith’ and in the best interests of the company. Acting in good faith as a director refers to the duty of a director to act honestly and sincerely in the best interests of the company, without any intention to deceive. It is a legal and ethical obligation to make decisions that benefit the company as a whole, rather than for personal gain. This concept is fundamental in corporate governance and ensures that directors are making choices that are not only legally compliant but also morally sound and in alignment with the company's objectives.

Acting in good faith and in the best interests of the company includes exercising care, diligence, and skill in decision-making processes, preparing and filing statutory (legally required) documents, calling meetings, maintaining accurate company records, filing annual returns, and binding the company to contracts.

It is crucial that you understand that as a director you cannot delegate certain duties, such as acting in good faith, exercising a duty of care, and trading sensibly. The Companies Act's recent amendments highlight that acting in the best interest of the company may involve considering factors beyond profit maximisation, such as environmental, social, and governance matters. If you fail to comply with these responsibilities it can lead to legal consequences.

Some of the common mistakes you, as a director, may make when you do not fully grasp your legal obligations, include failing to prioritise the company's best interests or not demonstrating the expected care and diligence (e.g. poor budgeting leading to financial mismanagement). You might also mishandle conflicts of interest, which could lead to decisions that favour your personal gain over the company's. Additionally, another common mistake is underestimating the administrative tasks required in managing a company, such as maintaining accurate records, which is crucial for compliance and effective governance.

It is important for you to always remember that, while as a director you want to steer the company towards success, you must also adhere to all required legal standards.

If you would like to discuss your role and responsibilities as a director, and if you are meeting your legal obligations then please get in touch.