Directors’ duties – What you need to know - Palmers Solicitors

Directors’ duties – What you need to know

Directors’ duties – What you need to know

Being put in the position of a director within an organisation is something to be proud of. The position carries with it a great deal of prestige and responsibility.

Understanding the legal duties of a director is crucial not only for ensuring that the person in that position is worthy of the title, but also ensures the effective governance and success of the business.

Under the Companies Act 2006, there are seven duties which all directors must adhere to.

The seven directors’ duties

Act within powers – Directors must always operate within the powers given to them within the company’s constitution which includes the company’s articles of association and any resolutions passed at general meetings.

This means understanding the limits of your authority and ensuring that all decisions and actions are within these boundaries. It’s about respecting the framework that defines the company’s purpose and operations.

Promote the success of the company – Promoting the company’s success involves the directors making strategic decisions that are in the best interests of the company and its shareholders.

It also requires a careful consideration of various factors including the long-term consequences of strategic decisions, the interests of the employees and business partners, and the impact on the wider community and environment.

A director must also be committed to upholding the company’s reputation for high standards of business conduct.

Exercise independent judgement – Directors must make decisions independently, without undue influence from others. This requires a balance of confidence and humility – confidence in one’s own decision-making abilities and humility to consider diverse perspectives.

A director should be able to stand their ground on issues they believe are in the best interest of the company, even in the face of opposition.

Use reasonable care, skill and diligence – Directors are expected to perform their duties with a reasonable level of care, skill, and diligence. This means applying the knowledge, skills and experience that is applicable to someone in their position as well as the skills that they personally possess.

This duty requires the director to be thoroughly prepared and understanding the internal and external factors that can impact the business.

Avoid conflicts of interest – Directors must actively avoid situations where their personal interests could conflict with those of the company. This involves identifying potential conflicts of interest and being transparent about them.

It’s about putting the company’s interests above personal gain and ensuring that all decisions are made objectively and in the best interest of the company.

Rejecting benefits from third parties – Directors should not accept benefits from third parties that could suggest they have been influenced by their decision-making. All decisions should be made solely on their merits and in the best interests of the company.

These actions will maintain the integrity of the role of a director and the trust of the shareholders and public.

To declare an interest in a proposed transaction or agreement – If a director has a person interest or arrangement that the company is considering, then this must be declared openly in the interests of transparency.

This ensures all decisions are made with a full understanding of the interests involved and that they are positively impacting the company.

Our team of expert solicitors have many years of experience in assisting directors with their legal duties.

If you would like assistance or have any queries about the duties of a director, please contact us today.