Directors are the people who officially manage the daily operations of the company in the  United Kingdom. The Companies Act 2006 regulates certain duties that the directors must follow  for a lawful management of their company. It is essential for people who intend to become a  director to know a brief of these duties.

Key words: Director, Duties of Directors,  Company Management in England, Companies Act 2006, Promote the Success, Independent Judgement, Reasonable Care, Breach  of Duty, Relief from Duty


For the Companies House, the regulator of  companies in the United Kingdom, a director  of a company is probably the most essential  person in the company. A director is formally  registered under the name of the company and  is the contact point of the Companies House  for any issue and shows authority. The directors can be more than one and they carry all the  day to day activities of the company. In short,  being either a legal or real person, directors  are the people who manage the company. The  details of the directors are transparent to any  viewer under the Companies House webpage,  except for some extraordinary circumstances.

The Companies Act 2006 ("Act") regulates  the rules on all kind of company matters in  the United Kingdom. The Act is very detailed  consisting of 47 Parts, 1300 Sections and 16  Schedules. Any director managing a company  should be familiar with the terms of the regulator Companies House and the regulation The  Companies Act 2006 on the daily management  of the company.

According to the Act, the shareholders of  a company and the directors of a company  have separate duties and responsibilities. The  shareholder of a company can be a director under a company, however, it is not essential.  The important part to note is that the duties of  the directors are higher than the shareholders.


Under the Companies Act 2006, the 7 general duties of the director are listed and a  brief description is provided in sections 171  to 177 for the duties of the directors under a  company.

Duty to Act within Powers (S171)1

The directors are bound to practise their  powers in accordance with the Articles of Association ("AoA") of the company, which  should also be open to public on the Companies House website. The Act calls the AoA as  the 'company's constitution'.

Most companies in the United Kingdom  practise with the model AoA which sets the  general rules for the company management  and the board. Companies are free to create  their own AoA by either changing the provisions of the model AoA or creating an AoA  from scratch. Any change requires a good level  of understanding of the Act for the provisions  not to be in contradiction with the regulations,  and should be done by lawyers.

It is advised that the directors go through the  AoA of the company to build an understanding of their duties and power when running  the company. The Act states that the directors  must act in accordance with the company's constitution and only act within the powers  conferred to them.

Duty to Promote the Success of the  Company (S172)2

Although the term 'promote the success'  sounds a bit ambiguous, and improving the  business of a company seems to be a regular  duty expected from a prudent director anyway; the Act puts the duty on the director by  drawing a wide range for directors to consider  when promoting the success of their company. The Act requires the director to act in a way  he/she considers, in good faith, would be most  likely to promote the success of the company  for the benefit of its shareholders. The Act also  states that, the directors must also consider  the consequences of their decision, and the  effects of these decisions to their employees,  suppliers, customers and others. The impact  of these decisions to the environment, the  community and the reputation of the company are also stated by the Act to be considered.  Therefore, it can be seen that the Act does not  see it as a simple duty when saying 'promote  the success' and asks the directors to consider  numerous elements when managing the day  to day operations of the company. This duty is  clearly beyond a mere financial success.

Another essential point to know here is that  since 2019, companies with more than 250  employees must provide explanation in their  annual financial report on how their directors  fulfilled this duty.

Duty to Exercise Independent Judgment (S173)3

Independent judgement is a very straightforward duty on the directors requiring them  to use their sole discretion on the decision they should not imprudently follow an advice  and use their own independent discretion. If  there is more than one director, this duty separately relies on each director and one director  cannot avoid responsibility by relying on the  decision of another or the directors cannot  agree to act in a certain way.

The Act also states that the directors acting  in accordance with an agreement the company  has signed or under the limitation of the AoA  will not infringe this duty.

Duty to Exercise Reasonable Care,  Skill and Diligence (S174)4

In short, this means that the director of a  company should be competent to carry the  duties with a reasonable amount of care, skill  and diligence. It also means that every director appointed to the company has to show the  reasonable amount of care to the daily management and decision making of the company  and a director should not be appointed just for  their name or reputation.

The minimum standard of care is expected from directors while practising their duties and it is only expected for them to act as  a reasonable businessperson. However, if the  director is someone with specialist knowledge  such as an accountant or a solicitor, the expectations also increase and higher level of care  and diligence is expected from such directors. Although it is not expressly stated in the  Act, an important duty of the directors under  this clause is to follow the annual financial  statements of the company and keeping the  records of any decision.

Duty to Avoid Conflict of Interest  (S175)5

When managing their businesses, a very  important aspect stated by the Act is that the  directors must not in any case act within their  own personal interest. The Act has regulated  three separate duties on this, which the first  making in relation to their powers. A director must not act as an agent or a delegate of  someone else, especially of the major shareholders. This does not of course prevent directors from taking advice from third parties, but  it means that when giving the final decision, is to avoid a situation where their personal  interest has a conflict with the interest of the  company. The Act clearly states that any direct  or indirect interest of the directors falls under  this scope and directors should be very careful  for either actual or possible conflicts.

In a large company management, conflict of  interests may become inevitable and, in these  cases, the director's duty is to act loyal to the  company and disclose any direct and indirect  conflict to other board members and act in accordance. The other directors have the right to  decide on a potential solution for the conflict  by either accepting or rejecting it. The other  board members must be careful the follow the  provisions of the AoA on this decision making  as, their consent is only possible if it is permitted under the AoA.

Duty not to Accept Benefit from  Third Parties (S176)6

The Act puts an extra duty on the directors  not accept any kind of benefit from third parties that may affect their impartiality and objective decision making. The limits for this is  that the benefit should directly or indirectly in  relation to them being a director. In addition,  if the gift does not arise any doubt of a potential conflict of interest, then the Act notes the  gift does not infringe this duty.

In practise, there may be situations where it  is difficult for the directors to decide if the gift  is in relation to their work or directors may  see the amount of gift too small to fall under  scope. To prevent any uncertainty, it is advised  that the companies have a gift and hospitality  policy to draw the lines.

Duty to Declare Interest in Proposed Transaction and Arrangements  (S177)7

Duty to declare any interest in transactions  can be read together with duty to avoid any  conflict. If it appears to be that the director  will have any kind of interest in a transaction or arrangement of the company, the director  should disclose this to other board members.  This can be a notice in writing or a declaration  made in a board meeting.


The Act further regulates the consequences  of any breach of the duties in S171 to S177 and  notes that the company, as the entity which  suffers from the breach, has rights to take  action against the director in breach.8 One or  more shareholders also have the right to make  a claim against the director in breach, if they  are in belief that they have personal financial  loss.

By considering the results of the breach,  there are numerous options for the company  can take from merely just removing the director from office to taking criminal action  against the director. In general practise, the  claim only covers claims for financial loss and  damage, returning company property and injunctions against the director.

As a relief from any breach of the director,  there are 3 possible ways for the director to  come clear of any claim.9 If they are authorised under the AoA, the non-breaching directors can authorise the action of the director in  breach. In addition, the shareholders of the  company can ratify the breach of the director  with a general assembly resolution. When the  shareholders ratify the breach, the company  loses its rights to take legal action. Finally, the  director can ask for a relief from the court by  proving that his action was honest and reasonable in those circumstances.


The Act and the AoA puts high level of duties on directors, which may become alarming  for people who intend to become directors of a  company in the United Kingdom. However, the  regulations are there to remind the directors  how valuable their work is towards the society  and in brief, there are two humanly qualities  expected from a director; honesty and reason-ableness. An honest, reasonable and prudent  businessperson who has a basic level of understanding of the Act and the AoA can successfully manage a business as a director. It is  only advised that they stay in contact with a  lawyer and have a professional accountant for  any kind of commercial and corporate issue to  stay on the safe side.


1 https://www.legislation.gov.uk/ukpga/2006/46/section/171

2 https://www.legislation.gov.uk/ukpga/2006/46/section/172

3 https://www.legislation.gov.uk/ukpga/2006/46/section/173

4 https://www.legislation.gov.uk/ukpga/2006/46/section/174

5 https://www.legislation.gov.uk/ukpga/2006/46/section/175

 6 https://www.legislation.gov.uk/ukpga/2006/46/section/176

7 https://www.legislation.gov.uk/ukpga/2006/46/section/177

8 https://www.legislation.gov.uk/ukpga/2006/46/section/178

9 https://www.legislation.gov.uk/ukpga/2006/46/section/180

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.