What are the main duties of a director?

The directors of a company have seven general duties under the Companies Act 2006 (which forms the primary source of UK company law). These duties, which are owed by the directors to the company and apply to executive and non-executive directors, are as follows:

1. A director must act within their powers.

This duty serves to limit what directors can do: they must act in accordance with the company’s constitution (its articles of association and any relevant decision or resolution of the company’s members), and they may exercise their powers only for the purpose for which those powers are conferred.

2. A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

This may be considered the most important duty of a director, but it does not exclude all other considerations. In considering what would promote the success of the company for the benefit of its shareholders, the directors must also have regard to the following:

• the long-term consequences of any decision;
• the interests of the company’s employees;
• the need to foster the company’s business relationships with suppliers, customers and others;
• the impact of the company’s operations on the community and the environment;
• the desirability of the company maintaining a reputation for high standards of business conduct; and
• the need to act fairly as between members of the company.

3. A director must exercise independent judgement 

Though they may legitimately act in accordance with an agreement duly entered into by the company that restricts the directors’ discretion.

4. A director must exercise reasonable care, skill and diligence

Using the general knowledge, skill and experience that may reasonably be expected of a person in the director’s position as well as the actual knowledge, skill and experience that the particular director has.

5. A director must avoid a situation in which they have, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company.

This applies particularly to the exploitation of any property, information or opportunity. However, the duty is not infringed if the situation cannot reasonably be regarded to give rise to a conflict of interest, or if the matter has been authorised by the directors. The company’s constitution may allow a director to vote on a matter in which they have an interest, provided that interest has first been declared.

6. A director must not accept a benefit from a third party 

Conferred by reason of their being a director or doing (or not doing) anything as a director. This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. The company may include in its constitution (such as its articles of association) a provision enabling directors to receive corporate hospitality without breaching this duty.

A director must declare the nature and extent of their interest to the other directors, if they are in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company. The director need not declare an interest if it cannot reasonably be regarded as likely to give rise to a conflict of interest. A director must also declare the nature and extent of any interest where they in any way, directly or indirectly, interested in a transaction or arrangement that has already been entered into by the company. It is a criminal offence, punishable by a fine, for a director not to declare an interest in an existing transaction or arrangement.