Seven Things Every Company Director Needs to Know

Becoming a company director comes with a fair bit of responsibility - and not just when things are going well. Whether you're the hands-on type, more of a silent partner, or even directing behind the scenes, all company directors have legal duties under the Companies Act 2006.

Here’s a straightforward look at seven key duties every director should be aware of:

1. Follow the company’s constitution

Your first duty is to stick to the rules set out in the company’s constitution and articles of association. These documents outline how the company should be run and what powers you have as a director. If you go outside those powers, you could be held personally responsible.

2. Promote the success of the company

You’re expected to act in the company’s best interests and promote its success. But that doesn’t just mean chasing profits. You also need to think about: - Long-term consequences of decisions. - The interests of employees. - Relationships with suppliers and customers. - The community and environment. - The company’s reputation. - Fairness to all shareholders or members.

And if the company becomes insolvent? Your focus legally shifts to protecting the interests of creditors.

3. Use your own independent judgment

It’s fine to take advice, but at the end of the day, you’re responsible for the decisions you make. You must use your own judgment and avoid simply doing what someone else tells you - even if they’re another director or major shareholder.

4. Exercise reasonable care, skill and diligence

You’re expected to do the job to the best of your ability. The law takes into account your personal knowledge and experience. So, if you’re a qualified professional (like an accountant or engineer), you’ll be expected to apply the skill and experience you have in your role as a director.

5. Avoid conflicts of interest

You need to steer clear of situations where your personal interests (or those of family members) might clash with your responsibilities to the company. This includes things like:

• Personal financial interests.
• Competing businesses.
• Inside knowledge you gained as a director.

If there’s even a chance of a conflict, it should be declared to the board - and any process set out in the company’s articles of association should be followed. This duty even continues after you’ve stepped down as a director.

6. Don’t accept benefits from third parties

You mustn’t accept perks or gifts from others that could influence your decisions as a director. The only exception might be something like reasonable corporate hospitality, and even then, only if there’s clearly no conflict of interest.

7. Declare any interest in company transactions

If there’s a chance you could personally benefit from something the company is doing (say, awarding a contract to a business owned by a relative), you must declare it. Letting the board know is essential, and in some cases, you may need to step back from decisions altogether.

Anything else?

There are other general duties to keep in mind besides those listed above. Maintaining confidentiality, not misusing company property, and always acting in good faith would be some further examples.

Being a director isn’t just about a title - it carries real legal responsibilities. If you’re ever unsure about your role or what’s expected of you, please feel free to speak to us at any time. A quick check now could save a big headache later.