The Dutiful Director

Being appointed the director of a company is a big responsibility. It is imperative that you are aware what the duties of a director are and how to ensure you are complying with the relevant regulations.

Where are directors’ duties set-out?

The Companies Act 2006, ss171-177 sets out the statutory duties of a director.  

What are the statutory duties?

The statutory duties (or general duties as they are commonly known) of a company director are as follows:

• the duty to act in accordance with the company's constitution and only exercise powers for the purposes for which they are conferred
• the duty to act in a way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and in doing so have regard to various matters (duty to promote the success of the company)
• the duty to exercise independent judgment
• the duty to exercise reasonable care, skill and diligence
• the duty to avoid a situation in which the director has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company (the duty to avoid conflicts of interest)
• the duty not to accept a benefit from a third party conferred because they are a director, and
• the duty to declare if the director is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, and the nature and extent of that interest, to the other directors (the duty to declare interests in proposed transactions or arrangements)

How are the general duties applied?

The general duties are owed to the company by every person who is a director of the company (this includes ‘shadow’ directors). The general duties of a director are in addition to, not instead of, any other prohibition or requirement imposed on a director by law. 

How can I protect myself as a director from legal action?

The first step is to make sure you understand the duties required of a director and abide by them in all the actions you take in your role.  Never simply assume that other directors in the company are doing their job correctly; make sure you keep a close eye on the financial statements and reports.

If you have any concerns as to the running of the company, make sure you seek independent, personal legal advice.

You may also want to consider whether it is worth having directors' and officers' liability insurance. Although this cannot protect you from legal action, it can, in certain circumstances, cover the costs of legal advice and damages awarded against you by a court.

Are directors subject to any other duties?

Yes.  For example, directors of publically listed companies must comply with CA Handbook, AIM Rules for Companies, UK Corporate Governance Code and the Institutional Investor Guidelines when discharging their duties.

To find out more about discharging directors’ duties or to obtain advice if you have been found in breach of the duties, find an expert corporate law solicitor by searching Solicitors Guru today.