10 duties and responsibilities of a company director

A company director is responsible for running a limited company. The Companies Act 2006, the articles of association, and any shareholders’ agreement or directors’ service contracts, set out directors’ duties and responsibilities.

It is an essential and all-encompassing position that varies from business to business. Generally, however, there are 10 key duties and responsibilities to fulfil, which we’ll outline in this blog.

Your duties as a company director

Companies operate under the control of shareholders and directors. The shareholders have ultimate control. However, they do not participate in the company’s management. Instead, they appoint directors to run the business on their behalf.

This means a director’s general duty is to manage all critical day-to-day affairs. Essentially, they must ensure they manage the company effectively and adhere to its statutory and contractual obligations. Shareholder approval is generally only required in exceptional circumstances.

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Whilst these two roles are separate, it’s common for directors to also be shareholders, enjoying additional rights and obligations, such as dividend payments and voting rights. Nevertheless, it is crucial to understand that the roles are distinct.

Whether or not you are also a shareholder, the 10 duties below will form the basis of your role as a UK company director. The list is made is made up of the 7 “director duties” set in sections 171 to 177 of the Companies Act 2006, followed by additional responsibilities placed upon them elsewhere. 

1. Act within your powers

Company directors must carry out their roles and duties in accordance with the Companies Act 2006 and the articles of association, only exercising their powers for their proper purposes.

The articles of association are a set of rules and regulations that govern a company’s operation. They specify the powers and duties of directors, the rights and obligations of shareholders, and how decisions are made.

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Many companies have a shareholders’ agreement as well as articles. This private, legally binding contract clarifies shareholders’ and directors’ roles, and who can and can’t make decisions in specific circumstances.

To fulfil their duties effectively, all directors must be familiar with the terms in the company’s articles, shareholders’ agreements, and any other relevant documents or contracts relating to their role or the company.

2. Promote the success of the company

Directors have a legal obligation to act in the company’s best interests. They must carry out their duties in a way that will most likely promote the business’s success for its shareholders’ benefit.

Directors must consider the consequences and impact of their decisions on key stakeholders, including employees, customers, business associates, suppliers, the general public, the community, and the environment.

They must also strive to create and maintain a reputation for high standards in company business conduct.

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To comply with this duty, directors should document their decision-making wherever possible. For example, in meeting minutes and company resolutions, stating that consideration has been given to such factors.

3. Exercise independent judgment

Company directors must exercise independent judgment and make decisions without external influence or control.

It is perfectly reasonable (and sometimes necessary) to accept professional advice. However, they must always remain impartial, reaching their decisions independently and free from third-party pressure or personal bias.

4. Exercise reasonable care, skill, and diligence

Almost anyone can be a company director, regardless of their qualifications, experience, or skills. However, they must be at least 16 years old and not subject to director disqualification or bankruptcy restrictions.

That said, the role carries great responsibility, so any person appointed as a company director must exercise reasonable care, skill, and diligence.

As per the Companies Act 2006, this means that a director must exercise the same level of care, skill, and diligence that a reasonably diligent person would exercise with:

• The general knowledge, experience, and skills that may reasonably be expected of any person carrying out the same duties as them in relation to the company
• The general knowledge, experience, and skills that they actually possess

No two people are the same, so every director’s understanding and capabilities will be different. Nevertheless, anyone appointed as a director should be able to perform the role reasonably effectively.

5. Avoid conflicts of interest

Company directors must avoid conflicts of interest by averting situations that may divide their loyalties. This especially applies to exploiting property, information, or opportunities in which the director’s interests (directly or indirectly) conflict with the company’s.

In the event of a conflict of interest, the director must first inform the remainder of the board (if there are other directors).

Subject to the company’s articles, the board of directors may authorise the conflict of interest. If they don’t have the power to do so, the matter should be referred to the shareholders.

If the articles or shareholders allow a conflict situation, the director must act appropriately and continue promoting the company’s success.

6. Not accept benefits from third parties

To maintain their integrity and avoid conflicts of interest, directors must not accept benefits from any third party if they are offered to them based on their position in the company. Such conduct could call the director’s and company’s ethics into question.

However, this duty is not violated if accepting the benefit is unlikely to cause a conflict of interest.

7. Disclose interests in proposed transactions or arrangements

Should a director personally benefit from a company transaction or arrangement, they must disclose its nature and extent to the other directors and, in some instances, to the shareholders.

An example may be if a company plans to enter into a contract with a business owned by a director’s spouse, another family member, or a business in which the director owns shares.

A director does not need to declare an interest if it is unlikely to cause a conflict or if the other directors already know about it.

8. Maintain statutory filing and reporting obligations

To comply with UK company law, directors must maintain several limited company filing and reporting obligations. These include (but are not limited to):

• Registering the company for Corporation Tax
• Registering for VAT and Pay As You Earn (PAYE), where necessary
• Preparing annual accounts and Company Tax Returns for HMRC
• Preparing annual accounts for Companies House
• Filing an annual confirmation statement with Companies House
• Paying business taxes in full and on time
• Keeping all necessary statutory company registers and accounting records
• Reporting any change of company details – e.g. a new registered office address, the appointment or removal of directors, a change of details for an existing director, and share allotments or share transfers
• Maintaining company addresses, signage, and stationery

Some companies appoint a company secretary to handle these compliance duties on behalf of the director(s). However, the directors remain responsible regardless of who carries out these tasks. 

9. Comply with additional legislation and regulations

Beyond UK company law, directors and their companies may be subject to a range of additional legislation and regulations, including:

• Health and safety laws
• Employment law
• Consumer rights
• Trade descriptions
• Competition law
• General Data Protection Regulation (GDPR)
• Licensing laws
• Environmental regulations
• Food safety and hygiene
• Intellectual property
• Equality and diversity
• Product safety
• Industry-specific laws and regulations
• Legal requirements related to regulated professions

Company directors are responsible for understanding the nature of the business and being aware of all laws and regulations that apply to the company.

This is where a company secretary can help. While they are optional for private limited companies, you may find it beneficial to appoint an experienced company secretary or consult a corporate solicitor if you require expert help and guidance.

10. Report personal income

Most directors receive a salary through (PAYE), an HMRC system that most employers use as part of their payroll. Directors pay Income Tax, Class 1 National Insurance contributions (NIC), and any other required deductions from their earnings through PAYE.

Many directors also receive taxable benefits from their company, while others may be entitled to dividends if they are also shareholders. If directors get untaxed income, they must register for Self Assessment to report and pay tax on these earnings.

In this situation, directors are responsible for registering with HMRC, completing an annual Self Assessment tax return, and paying the relevant taxes (e.g. Income Tax, NIC, and Dividend Tax) on any additional earnings that aren’t processed and taxed through PAYE.

What are a director’s duties when a company is insolvent?

Unlike shareholders, directors are not generally liable for the company’s debts. However, if they breach their legal duties, they can be fined, prosecuted, disqualified from directorship, and held personally liable for debts or claims.

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Liability risk is most prevalent during insolvency (i.e. when a company can’t pay its debts). Directors have specific duties when a company is insolvent, whereby they must shift their priorities to creditors rather than shareholders to minimise the money the company owes and cannot repay.

Thanks for reading

We’ve explained directors’ duties, how their role differs from company shareholders, and when directors may be personally liable.

For more information on setting up and running a limited company, explore the 1st Formations Blog. You’ll find a wealth of information to help you succeed as a company director and small business owner.

If you have any questions about this post, please comment below.