Farm Ireland

Friday 24 November 2017

Legal obligations apply for directors of farm businesses

If you incorporated your farm recently, are you aware of the obligations that your new role as a director carries?

More often than not, farming companies are set up by legal, accounting or farm advisers working with a company formation agent.

The farmer agrees to be nominated as director and secretary of the company and their spouse is nominated to become the other director.

And that is where the company formation agent's role usually ends, with the farmer and spouse having no idea of the duties and responsibilities they take on as officers of the company.

It's bad enough that farmers themselves are not aware of their responsibilities, but it's certainly not fair to expose a spouse, sibling or friend to charges of failing to meet their obligations as non-executive directors without them even realising the obligations they are undertaking.

Directors' duties are owed primarily to the company and to a lesser extent to members, creditors and employees.


As the vast majority of farming companies are private companies, the directors and members of the company tend to be one and the same.

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A company director who is also acting as the secretary has an extra set of duties and obligations which will be covered in a future article.

Directors' legal duties can be summarised as follows:

nDirectors must exercise their powers in good faith and in the interests of the company as a whole. Directors should not use their position for personal gain or for the benefit of others at the company's expense;

nDirectors are not allowed to make an undisclosed profit from their position as a director and must account for any profit they derive from the position;

nDirectors are obliged to carry out their functions with due care, skill and diligence. A director is liable for any loss resulting from their negligent behaviour;

nA director must comply with their obligations under the Companies Acts. If a company is found to be non-compliant with relevant provisions under the Companies Acts, a director is presumed to have allowed the company to be non-compliant unless the director can establish that they took all reasonable steps to prevent it or, due to circumstances beyond their control, were unable to do so;

nA director should ensure that the company's accounts correctly record and explain the financial transactions of the company and at any time enable the financial position of the company to be determined with reasonable accuracy;

nThe annual accounts should also give a 'true and fair view' of the company's affairs. The directors are required to prepare a report to submit with the accounts, the contents of which are prescribed by the Companies Acts;

nA director has to ensure that tax returns are accurate and submitted on time;

nA director is responsible for ensuring that the registers (such as register of members, directors, secretaries and debenture holders) and other documentation (such as minute books, directors' service contracts) are maintained and updated and made available to appropriate parties;

nDirectors have a duty to file documents such as the annual return, notice of increase in authorised share capital, change of director/ secretary or their particulars, notification of the creation of a mortgage/charge, ordinary resolution and special resolutions with the registrar of the Companies Registration Office (CRO);

nDirectors are required to disclose personal information such as their interests in shares of the company or related companies, payments to be made to them in connection with share transfers, directors service contracts with the company or where a director has an interest in a contract or proposed contract with the company this fact must be declared at a directors' meeting;

nDirectors are usually required to ensure that every company holds an AGM, the only exception being a single member private limited company. The directors are required to present the financial statements at the AGM together with the directors' report. An extraordinary general meeting (EGM) is called to deal with matters outside the normal business such as where the company's net assets have fallen below 50pc of the called up share capital;

nA director is under a duty to ensure that the company does not engage in anti-competitive business practices;

nA director has duties under a vast array of environmental legislation including planning, the EPA, local authorities and fisheries;

nDirectors have a duty to ensure compliance with health and safety legislation in relation to all staff;

nWhere a director of a company sells an asset to a company and the value of that asset exceeds €63,487 or 10pc of the company's net assets, the arrangement must first be approved by resolution of the company in a general meeting. If the arrangement is not first approved, the arrangement can be ruled to be null and void.


A company is generally prohibited from making a loan to a director or a connected person or from entering into a credit transaction or guarantee on behalf of such a person. A breach of directors' statutory duties may result in the personal liability of the director concerned and the director could be subject to restriction orders, disqualification orders, fines, imprisonment or injunctions depending on the nature and extent of the perceived breach of duty.

There is plenty of information available on director's duties and time spent reading up on it might well avoid a nasty surprise for any aspiring director.

Aisling Meehan is a solicitor, tax consultant and Nuffield Scholar. She does not accept responsibility for errors or omissions. E-mail

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