Directors Duties

It is not only the employees of a company that have a certain set of obligations under UK company law, directors also have a number of legal obligations  towards the company, which are referred to as directors duties.

Company directors are usually part of a group. This group can be called a boards of directors, a broad of governors or an executive boards, but the directors duties always remain the same. This group could be elected or directly appointed.  There is a set of terms that refer to different members of this board:

  • A director is any member of the board
  • An inside director is an individual with some kind of relationship to the company other than being on the board
  • An outside director is the direct opposite of an inside director
  • An executive director is an inside director who resides in an executive role within the company
  • A non-executive director is not an executive within the company

Director’s duties and the Companies Act 2006

The Companies Act 2006 lays out seven principle director’s duties that are now enshrined within UK company law. These seven director’s duties appear in sections 171 to 177 of the act and are based on traditional common law principles.

The Companies Act 2006 does not set out the legal measures that can be taken by a company if the director’s duties are not honoured are not written in the act but the common law practice of compensation and restitutions still stands. It is always prudent to seek out legal advice from a professional solicitor before taking one of these actions.

The Directors duties set out in the Companies Act 2006 are as follows:

  • The director must follow the constitution of the company to the letter. This means that the exercise of power can only be justified if it used for proper purposes. Examples of improper wielding of directors power includes using company capital for self enrichment or attempting to stop takeovers or acquisitions.
  • Directors must observe a duty of care towards both the company and the individuals that make it up. I can reasonably be expected that the director will have the skill, foresight and ability that such an important role requires
  • It is a director’s duty to promote the company as best they can. This means that they should work towards the success of the company in a way that always has an eye on the long term direction the company is taking at that particular point.
  • A director must under no circumstances must accept no money or other benefits from third parties when conducting company business. This is seen as a huge ethical issue when it comes to the character of the person who is running the company on a day to day basis.
  • If the director has a significant interest in a business deal that extends beyond the company in question, they must declare that interest to the board before conducting any negotiations or business dealings. An example of this would be an events company’s director initiating a deal with a plastic chairs company they are a shareholder in.
  • The director must work hard to avoid the possibility of any kind of conflict of interest arising between them and the company or any specific part of it.
  •  The director may never take advantageous of business opportunities that the company could have exploited without it for their own personal gain.

These directors’ duties are enshrined in UK company law and are important to make sure that companies are being run in a fair and ethical way, not just for the shareholders but also for the employees and anyone else that relies on the company for a product or service.