Company Director Duties UK: Your Legal Obligations

Overview

A company director is a person appointed to manage the affairs of a limited company on behalf of its shareholders. In a private company limited by shares, directors hold the authority to make commercial decisions, enter contracts, hire staff and set strategy, but they do so as fiduciaries, meaning they owe their loyalty to the company itself rather than to themselves, a particular shareholder, or even the board as a group.

The Companies Act 2006 codified seven general duties that every director owes, covering everything from acting within the powers given by the company's constitution to exercising independent judgment and reasonable care. Alongside these statutory duties sit obligations around filing accounts and confirmation statements at Companies House, maintaining accurate records, paying the right taxes, and keeping the company solvent.

When things go well, these duties are a background framework. When things go wrong, such as insolvency, a shareholder dispute, or a regulatory investigation, they become the yardstick against which a director's conduct is measured, and personal liability can follow.

Key steps

1. Know the seven statutory duties. Sections 171 to 177 of the Companies Act 2006 set out the core duties: acting within powers, promoting the success of the company, exercising independent judgment, exercising reasonable care skill and diligence, avoiding conflicts of interest, not accepting benefits from third parties, and declaring interests in proposed transactions. Read them once, properly, and keep them in mind.
2. Get your filings in order. Directors are responsible for making sure the company files its annual accounts, confirmation statement and any changes to officers or registered office with Companies House on time. Late filings trigger automatic penalties, and persistent failure can lead to the company being struck off and the directors being disqualified, so build a calendar and stick to it.
3. Disclose conflicts before they become problems. If you have a personal interest in a contract, transaction or arrangement the company is considering, say so in writing before the board decides. Record the disclosure in the board minutes, and where the articles or the Companies Act require it, get the conflict formally authorised by the other directors or by shareholders.
4. Treat company money as the company's money. Keep personal and company finances strictly separate, take only the remuneration and dividends the board and shareholders have properly approved, and do not help yourself to the current account for personal expenses. If the company is approaching insolvency, the duty to consider creditors becomes paramount, and informal borrowing becomes far riskier.
5. Take proper steps before lending to a director. Loans from a company to its directors are regulated under Part 10 of the Companies Act 2006 and usually require shareholder approval by ordinary resolution, supported by a memorandum setting out the loan's terms. There are limited exceptions for small amounts and expenses, but assume approval is needed unless you have checked otherwise.

Common questions