Duties Of A Company Director Explained

• Company Commercial

Being a director of a company is a position of trust, leadership, and personal legal responsibility. Whether you are a sole director or you’re on the board of a small startup or a large company, understanding your legal and ethical duties is essential. With this in mind, our corporate and commercial solicitors have summarised the key duties of a company director in this short guide.

What Are The Duties Of A Company Director?

Directors’ duties are the legal obligations that company directors must follow to ensure they act in the best interests of the company. These duties are laid out in the Companies Act 2006; they also reflect the following basic principles of good business practice, including:

• Protect the company from legal trouble and poor decision-making.
  
• Protect you from personal liability or being disqualified as a director.
• Build trust with investors, employees, and the public.
  
• Create long-term value by guiding the company responsibly.

Below are the core duties of a company director that all are expected to follow as per the Companies Act 2006:

1. Duty to Act Within Powers

You must follow the company’s constitution (the articles of association) and only do what you’re legally allowed to do as a director.

It is important that you know the rules, as there are many directors who run companies without ever reviewing or understanding the company’s articles; as a result, the rules are likely to be unwittingly broken. 

2. Duty to Promote the Success of the Company

Another one of the key duties of a company director is that you must always act in a way you believe will help the company succeed for the long term, considering employees, customers, suppliers, the environment, and other matters/stakeholders. Directors must look beyond short-term profits and consider wider stakeholder interests and the long-term impact of decisions. Documenting the rationale behind decision-making (e.g. board minutes) is key to demonstrating compliance with this duty. With this in mind, if your business is due to make critical decisions, you should ensure you record your decision-making.

3. Duty to Exercise Independent Judgment

You are unable to delegate the risk for collective decisions to specific directors. For example, just because one director may have accountancy expertise, does not excuse the remaining directors from considering accountancy-related decisions properly – even if they are senior or influential.

Even if you are appointed by a major shareholder, it is your duty as a company director to act in the best interest of the company as a whole, not as a proxy for someone else’s agenda. 

4. Duty to Exercise Reasonable Care, Skill and Diligence

You are expected to be competent, pay attention, and take your role seriously. The more experience you have, the more is expected of you.  This duty is both objective and subjective:

• Objective: What would a reasonably diligent person with general knowledge, skill and experience be expected to do?
• Subjective: What should be expected of someone with your actual skills, experience, and knowledge

Directors must be active, informed, and engaged in their role. Greater responsibility is expected from directors with specialist knowledge (e.g. accountants, lawyers, or technical experts). In other words, do your homework and be proactive.

5. Duty to Avoid Conflicts of Interest

Directors are duty-bound to avoid any situation in which they have, or could have, a direct or indirect interest that conflicts with the company’s interests. This applies to:

• Business opportunities;
• Competing companies; and
• Personal relationships or financial interests.

Disclosure and prior authorisation from the board is required where permitted.

If a director is involved in another company or has a personal interest that overlaps with the company’s business, they must declare it and seek board or shareholder approval. Personal interests come in many forms, such as financial interests, family connections, or other business roles. If you are not entirely sure whether a conflict applies, ensure that it has been clarified and dealt with before proceeding. 

6. Duty Not to Accept Benefits from Third Parties

This duty of a company director may seem like an obvious one, but it is one that could easily be broken – you shouldn’t accept gifts, bribes, or favours that could influence your decisions as a director.  Do not allow personal benefits or perks that could sway your judgment.

7. Duty to Declare Interests in Proposed Transactions

If you have any interest in a deal the company is doing, you must say so, upfront and honestly. Honesty is always the best policy. Be transparent about any personal connections to deals or contracts, the more open you are, the more likely that you will gain shareholders’ trust and not fall foul of your obligations.

Director Tips 

With lots of key duties to follow as a company director, there are a number of things you can be doing to stay on top of said duties. Below are some tips that will assist you in following the rules:

• Review and understand your company’s articles of association.
• Keep good records of board decisions and your reasoning (especially for business-critical or decisions taken that are not in the normal course of business).
  
• Ask questions if something doesn’t seem right.
• Avoid passive involvement – active directors are responsible directors.
  
• Seek advice if you’re unsure – from legal or governance professionals.

Being a director is more than just a title; it’s a legal and ethical role that comes with serious responsibilities. But by understanding and following your duties, you’ll not only stay on the right side of the law – you’ll also help your company thrive.

If you would like to discuss the duties of a company director or your company’s articles of association, or any other corporate commercial legal issue, then please contact either Zena Farouqa (Zena.Farouqa@GAsolicitors.com) or Jack Ross (Jack.Ross@GAsolicitors.com) directly via or call 01752 203500.

GA Solicitors in Plymouth is ranked in Chambers UK, Chambers High Net Worth, The Legal 500 and The Legal 500 Green Guide. You can be assured that your company’s commercial needs will be met effectively and commercially. For more information about our commercial legal services, please click here.

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