A company director is in charge of managing the activities and performance of a company, with the aim of making the business a success for the benefit of its shareholders. Their duties are set out in the Companies Act 2006 and the articles of association, with further specification of the role often included within directors’ service contracts and shareholders’ agreements.
It is an important and all-encompassing position that varies from business to business. Generally, however, there are 10 key duties to fulfil. In this article, we look at the duties of a director in a company.
Your duties as a company director
Companies operate under the control of shareholders (members) and directors. The members of a company have ultimate control, but they do not participate in the management of the company in their capacity as shareholders. They appoint directors to run the business on their behalf.
This means that one of the general director responsibilities is to take care of all of the important day-to-day affairs, ensuring that the company is managed effectively and adheres to its statutory and contractual obligations. Shareholder approval is generally only required in exceptional circumstances.
Whilst these two roles are separate, it is not unusual for directors to also be shareholders of a company, enjoying additional rights and obligations beyond those afforded by their directorship. However, it is important to understand that the roles are distinct.
Regardless of whether or not you are also a shareholder, the following director duties will form the basis of your role as a UK company director:
1. Act within your powers
Company directors must carry out their role in accordance with the articles of association, only exercising their powers for their proper purposes.
The articles of association is a set of rules and regulations that governs the way in which a company operates, including the powers and duties of directors, the rights and obligations of shareholders, and how decisions are made.
In many companies, the articles are supplemented by a shareholders’ agreement. This is a private agreement that clarifies the roles of members and directors, including their rights, the extent of their authority, and who can and cannot make decisions in specific circumstances.
To fulfil their duties effectively, it is essential that all directors are familiar with the terms set out in their company’s articles, shareholders’ agreement, and any other relevant documents or contracts relating to their role and the company as a whole.
2. Promote the success of the company
As a director, you have a legal obligation to act in the best interests of the company, and in a way that is most likely to promote the success of the business for the benefit of its members.
Whilst doing so, directors must consider the consequences and impact of their decisions on employees, customers, business associates, suppliers, members of the general public, the community, and the environment. They must also strive to create and maintain a reputation for high standards with regard to the company’s business conduct.
To demonstrate compliance with this duty, directors should document their decision-making wherever possible (for example, in meeting minutes and resolutions), stating that consideration has been given to such factors.
3. Exercise independent judgment
Company directors should not allow their powers to be influenced or controlled by others – they must exercise independent judgment and make their own decisions.
It is perfectly reasonable (and sometimes necessary) to accept professional advice, but directors 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, provided they are at least 16 years old and are not subject to the restrictions of director disqualification or bankruptcy. Moreover, by law, you do not need any specific qualifications, experience, or skills to be a director.
That being said, the role carries a great deal of responsibility, so any person who is appointed as a company director is required to 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 skill 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 skill that they actually possess
No two people are the same, so it stands to reason that every director’s understanding and capabilities will be different. Nevertheless, it is expected that anyone who is appointed as a director should be able to perform the role in a reasonably effective manner.
5. Avoid conflicts of interest
Company directors must endeavour to avoid conflicts of interest at all times, by steering clear of situations that may divide their loyalties. In particular, this applies to the exploitation of property, information, or opportunities in which the director’s interests, whether directly or indirectly, are in conflict with those of the company.
If any potential conflicts of interest should arise, the other directors (if any) must be informed in the first instance.
Subject to any restrictions or requirements within the company’s articles, the board may authorise the situation. If they do not have the power to do so, the matter should be referred to the shareholders.
If a conflict situation is permitted under the articles, or authorised by the board or shareholders, the director must act appropriately and continue to promote the success of the company.
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 it is offered to them on the strength of their position in the company, or by reason of the director doing (or not doing) something in that role.
Such conduct can give rise to expectation, misinterpretation, and suspicion, which would call into question the propriety and probity of not only the director, but also the company as a whole.
However, this duty is not infringed if the director’s acceptance of the benefit could not reasonably be regarded as being likely to give rise to any conflict of interest.
7. Disclose interests in proposed transactions or arrangements
If there is potential for a director to personally benefit from a proposed or existing transaction or arrangement entered into by the company, the nature and extent of the interest must be disclosed to the other directors (if any) and, in some cases, the company shareholders.
An example may be if a company is planning to enter into a contract with a business that is owned by a director’s spouse or another family member, or a business in which the director owns shares.
There is no need to declare an interest if it cannot reasonably be regarded as being likely to give rise to a conflict of interest, or if the other directors in the company are already aware of it.
8. Maintain statutory filing and reporting obligations
To comply with UK company law, directors have a legal duty to maintain a number of 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)
- 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 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 take care of these compliance duties on behalf of the director(s). However, regardless of who is tasked with carrying out such obligations, the buck stops with the director.
They are still legally responsible for these duties, and should always ensure they are up to date with the status of the company’s statutory filing and reporting requirements.
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
As a company director, it is your responsibility to understand the nature of the business and be aware of all laws and regulations with which the company must comply.
This is the type of area in which a company secretary specialises, so you may find it beneficial to appoint one or consult a corporate solicitor if you require expert help and guidance on such matters.
10. Report personal income
Most directors receive a salary through Pay As You Earn (PAYE), which is a HMRC system that the vast majority of employers use as part of their payroll. Through PAYE, directors pay Income Tax, Class 1 National Insurance contributions (NIC), and any other required deductions from their salary.
Many directors also receive taxable benefits from their company, whilst others may receive dividends if they are also shareholders. If a director receives any such type of untaxed income, they must register for Self Assessment to report and pay tax on these earnings.
The director will be responsible for registering themselves with HMRC, completing a Self Assessment tax return each year, and paying the relevant taxes (e.g. Income Tax, NIC, and dividend tax) on any additional earnings that are not processed and taxed through PAYE.
Thanks for reading
So, there you have it – the 10 duties of a company director that you must carry out to comply with UK company law.
For more information about setting up or running a limited company, take a look at the 1st Formations Blog, where you will find a wealth of information to help you succeed as a company director and small business owner.
Should you have any questions about this post, please comment below. Our company formation team is also on hand to provide help and guidance with any company-related matters.