Understanding Directors’ Responsibilities: A Simple Guide

Director Responsibilities

Being a director of a company is both rewarding and demanding. Whether you’re joining the board of an established firm or starting a new business, the role comes with significant duties and responsibilities.

Here’s a straightforward guide to what’s expected from you as a director.

Types of Business Entities

In the UK, businesses can operate as either unincorporated entities (like sole traders or partnerships) or incorporated bodies (companies). Most companies are limited by shares, meaning shareholders’ liabilities are limited to their share capital.

A limited company can be either private or public. Public companies must include ‘public’ or ‘plc’ in their names and can offer shares to the public. The responsibilities and penalties for directors are stricter in public companies.

Your Role as a Director

As a company director, you have extensive legal responsibilities. The Companies Act 2006 outlines these duties to make them clear and accessible.

Here are the seven key duties you need to be aware of:

1) Duty to Act Within Your Powers

Follow the company’s constitution and use your powers only for their intended purposes.

    2) Duty to Promote the Success of the Company

    Act in a way you believe will benefit the company in the long term, considering factors like employee interests, business relationships, community impact, and maintaining high standards of conduct.

    3) Duty to Exercise Independent Judgment

    Make your own decisions and don’t just follow others blindly, even if the company has agreements that restrict your discretion.

    director responsibilities

    4) Duty to Exercise Reasonable Care, Skill, and Diligence

    Use your knowledge and experience to make informed decisions, and maintain a level of diligence expected from someone in your position.

    5) Duty to Avoid Conflicts of Interest

    Avoid situations where your personal interests could conflict with those of the company. This includes not exploiting company opportunities for personal gain.

    6) Duty Not to Accept Benefits from Third Parties

    Don’t accept benefits from third parties that could be seen as a conflict of interest, unless it’s clear they won’t affect your impartiality.

    7) Duty to Declare Interest in Proposed Transactions or Arrangements

    If you have a direct or indirect interest in a transaction the company is considering, you must declare it to the other directors.

    Enforcement and Penalties

    The Companies Act doesn’t specify penalties for failing to meet these duties, but breaches can lead to legal action. Actions can be brought by the company, its shareholders, or a liquidator if the company is in liquidation. However, directors who act honestly and conscientiously usually have nothing to fear.

    How We Can Help

    Understanding and fulfilling your responsibilities as a director is crucial.

    Director Limited Company

    At Blue Spire, we provide the professional advice you need to navigate these duties effectively.

    If you need more information or support, don’t hesitate to get in touch with us.
    Picture of Blue Spire

    Blue Spire

    We're Here For you

    Let's talk

    Our friendly team are ready to help you and answer any questions you may have. Just use the form below and get in touch.

    Scroll to Top