Top Mistakes That Company Directors Should Avoid

As a company director, you are morally as well as professionally obliged to fulfill and conduct a just operation in your company. Often, company directors face penalties, fines, and even disqualification when these obligations are not fulfilled.

So, what are the common mistakes that may lead you to lose your position as a director of your company?

Non-Compliance With Legal Obligations

Running a company requires you to adhere to certain legal and regulatory obligations. These include ledger maintenance, accounting, filing tax returns, confinement to the field of operation, and many more. As the director of your company, you need to be aware of these operations. Moreover, you would need to cross-check for any discrepancies that can complicate the situation and may jeopardize your position as a director.

Outstanding Debts To Creditors

One of the common mistakes that lead to the insolvency of companies is when liability surpasses the assets. In the event, if there comes a situation when you need to file for bankruptcy, it is best to seek legal advice. A legal attorney with professional expertise in company laws can guide you through the alternatives you have. Otherwise, they can help you with the process of filing. Outstanding debts to creditors should not be ignored, as they can have serious repercussions.

Inability To Fulfill Fiduciary Duties

The Companies Act, 2006 can hold the director of a company personally liable for losses caused to its creditors. For example, if there are any preferential payments made to a creditor putting the beneficiary in a position above other creditors; the director may face misfeasance claim. When facing a Misfeasance Claim, Neil Davies of NDandP Solicitors says that you should quickly decide whether you will settle for the amount claimed or deny the claim, and then get legal advice from a specialist on how to respond.

High Employee Turnover Rate

Apart from duties towards the lenders and creditors, a director has the responsibility for the company’s smooth and efficient operations. A factor that can affect the overall efficiency of the company is employee turnover rate. It refers to the frequency of employees that abscond your organization. A higher turnover rate suggests frequent hiring, which requires training and time. Too many hours in training can affect the ultimate production. You can try noting the key reasons for the higher rate and try to eliminate them.

Neglecting Internal Affairs Of The Organisation

As the director of the company, you are accountable for any misconduct carried out under your leadership. In the court of law, negligence towards any such activity, which also involves laundering, tax evasion, and overdrafts on the company’s account, can have serious repercussions. It is advised that you stay on top of what’s happening within your company. The court may not consider whether you were aware of the activity taking place or otherwise. It may charge you with director disqualification on the grounds of incompetent performance.

Regardless of the type of company you operate, these mistakes are common to all directors. Awareness about these mistakes can help avoid them and you may retain your position for as long as you are capable.

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