Directors' Duties

This Statement provides a guide to the duties of directors.

The different legal sources of directors' duties

Legal obligations are placed on directors by the common law and statute. A large part (but not all) of the common law duties have been given a statutory footing in the Companies Act 2006 ("CA06").

Who do they apply to?

Directors' duties are obligations on all directors, including:

executive directors; non-executive directors (executive and non-executive directors whose appointments have been registered at Companies House are sometimes called "de jure directors"); "de facto directors" (directors who have not been formally appointed or registered as directors but act and are held out as such); and "shadow directors" (those directors who do not act as directors and are not registered as directors but in accordance with whose instructions and direction the board of directors are accustomed to act). Seven general duties of directors

The seven general duties of directors set out in sections 171 to 177 CA06 are:

to act within the powers conferred by the company's constitution; to promote the success of the company; to exercise independent judgment; to exercise reasonable care and skill; to avoid conflicts of interest; not to accept benefits from third parties; and to declare interests in proposed transactions or arrangements. These duties apply at all times and not just when the company faces financial difficulty. If a director is the director of more than one company, he should consider his actions in respect of these duties separately for each company.

Directors' duties owed to the "company"

Section 172 CA06 provides a director must act in a way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members (eg shareholders) as a whole, and in doing so have regard to the...