If you are thinking of starting a Limited company or have recently done so, it’s important to understand what is expected of you as a director.

Directors are required to meet seven key duties as outlined in The Companies Act 2006. Failing to adhere to these duties can result in fines, penalties, and even bans from serving as a director in any UK company, potentially for life.

Here we explain the 7 key duties of a director.

1. Duty to Act Within Powers

As a director, you must:

Act according to the company’s constitution.

Exercise your powers only for their intended purposes.

2. Duty to Promote the Success of the Company

Your actions should always aim to benefit the company and its shareholders. This involves:

Acting in good faith.

Ensuring fair treatment among company members.

Considering potential impacts of business decisions.

Fostering positive relationships with suppliers and customers.

Acting in the best interests of the company’s creditors.

3. Duty to Exercise Independent Judgment

You are expected to make decisions based on your independent judgment, unless:

The company’s constitution authorises otherwise.

There is an existing agreement limiting future discretion.

4. Duty to Exercise Reasonable Care, Skill, and Diligence

This duty requires you to:

Act with the care, skill, and diligence expected of a director.

Ensure anyone acting on your behalf possesses the necessary skills and knowledge.

5. Duty to Avoid Conflicts of Interest

Directors must:

Avoid situations where their interest’s conflict with the company’s.

Refrain from exploiting company property, information, or opportunities for personal gain.

Exceptions include:

Situations arising from transactions or arrangements with the company.

Scenarios where other directors authorise the conflict, provided this does not invalidate the company’s constitution.

6. Duty Not to Accept Benefits from Third Parties

You should not accept benefits from third parties if:

The benefit arises because of your role as a director.

It stems from actions taken as a director.

There is an exception if the benefit cannot reasonably be seen as likely to create a conflict of interest.

7. Duty to Declare Interest in Proposed Transactions or Arrangements

Before any transaction, you must:

Inform other directors in writing or at a directors’ meeting.

Ensure declarations are accurate and updated with any changes.

Again, this duty does not apply if the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.

Understanding and fulfilling these duties is crucial for the smooth operation and success of your company. As accountants and business mentors, we are here to guide you through these responsibilities, ensuring you remain compliant and focused on growing your business.