Directors' Duties

• Published date: 23 August 2021
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Directors and Officers, Contracts and Commercial Law, Shareholders
• Law Firm: Boyes Turner
• Author: Ms Charlotte Gorman

As a director of a company in any sector there are many commercial matters to think about. Whilst focussing on developing your business it is easy for the legal framework governing your duties as a director not to be at the forefront of your mind. However, complying with directors' duties is mandatory for directors of all UK companies and breaching these duties could result in civil and criminal liability as well as disqualification as a director. This article provides an overview of the general duties applicable to directors.

Directors are subject to general statutory duties, comprised of seven core duties, which are set out in Chapter 2 Part 10 of the Companies Act 2006 ('CA 2006'). Such duties apply to all directors, whether executive, non-executive, 'de jure' (those validly appointed at Companies House), 'de facto' (any person who acts as if he is a director and is treated as such by the board without having been validly appointed at Companies House), or a shadow director (a person in accordance with whose directions or instructions the directors are accustomed to act).

In general, a director owes his duties to the company of which he is a director and it is usually the company which would enforce the duties. These statutory duties are as follows:

1. Duty to act within powers (section 171 CA 2006)

A director must act in accordance with the company's constitution and only exercise powers for the purposes for which they are conferred. For these purposes, the company's constitution includes the company's articles of association as well as certain resolutions and decisions by the members, or class of members, of the company.

2. Duty to promote the success of the company (section 172 CA 2006)

The duty to promote the success of the company requires a director to act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. What constitutes 'success' may differ between companies but for commercial companies it will usually mean the long-term increase in the value of the company. In carrying out this duty, a director must have regard to the following, non-exhaustive, list of factors:

• the likely consequences of any decision in the long term;
• 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...