The seven duties of a company director became codified under the Companies Act 2006.
This Act came into full effect in October 2009, and since then these duties have become more certain, consistent, and accessible.
Acting under the company’s constitution – A key aspect of the company’s constitution is the articles of association.
By acting under the company’s constitution, a director must exercise their powers for the purposes they are granted for.
Promoting the success of the company – Probably the most well-known of the seven duties, a company director is responsible for promoting the success of the company.
Whilst this may seem an obvious task, there are a certain number of implications. Decisions made by the board are only justifiable in the context of the best interests of the company.
Exercise independent judgement – As a director of a company, you will be expected to develop an informed view of the company’s activities.
It is not acceptable to simply implement the commands or wishes of other parties, major shareholders for example.
Exercise reasonable care, skill, and diligence – Directors need to exercise reasonable skill, care, and diligence when carrying out their duties. This falls into either of the following:
- Objective: The general skills, experience, and knowledge that can be reasonably expected from an individual carrying out the director’s functions
- Subjective: The individual’s actual skills, knowledge, and experience
Avoid conflicts of interest – Under this duty, the director has a statutory obligation to avoid any situation in which they could have or have a direct or indirect conflict of interest.
Refuse benefits from third parties – Acceptance of benefits is not permitted if they have been offered by a third party because of the director’s position.
Declare interests in transactions or arrangements – Directors must disclose any direct or indirect interests they have in a proposed transaction or arrangement with the company.
The Key Takeaway
The Companies Act 2006 gives individuals greater certainty and clarity on the director’s duties.
These duties need to be considered fully in the day-to-day tasks of any director, to avoid serious issues or criminal investigations.
We have created a Directors Duties Guide which expands on the points made above, this can be found here.