Responsibilities of a company director

If you’ve set up a limited company, you have to be aware of your new responsibilities as a company director.

Running the day-to-day business is up to you, but as a company director, you’re also legally obligated to perform certain duties and act in a certain way, as outlined in the Companies Act 2006.

The Act is designed to ensure all directors exercise their powers appropriately, upholding the values of the company and promoting its success. In this guide, we explore all the legal responsibilities of a limited company director.

What is the director’s role in a limited company?

Any limited company is owned by shareholders and run by directors. Shareholders appoint these directors (each company must, by law, have at least one), trusting them to manage the business.

This includes making strategic decisions, overseeing the wellbeing of employees and ensuring the company complies with all its statutory obligations (legal and financial).

Management duties range from maintaining and filing accounts to monitoring finances and handling shares.

What are the legal responsibilities of a company director?

Companies depend on directors for their expertise and judgement. You hold a lot of responsibility and significant decision-making power.

To help ensure all company directors understand this responsibility, and carry their tasks out with integrity, honesty and accountability, the UK government outlined a set of seven director duties in the Companies Act 2006, which are listed below:

1. Duty to act within powers – All directors are expected to have a good working knowledge of the company’s constitution. This is the legal document the company put together when it was set up and registered. In particular, you need to follow the articles of association, which sets out rules for the board of directors and their decision-making powers. You’re obligated to exercise these powers appropriately. If you ever exceed these powers, your decision can be reversed – and you might even need to compensate the company for any related financial losses incurred.
2. Duty to promote the success of the company – Directors are expected to act in a way that is most likely to promote the success of the company. In short, any action you take should benefit members of the company as a whole.

3. Duty to exercise independent judgement – Although you need to follow the rules and align to company values, this doesn’t mean you can’t have your own view. In fact, you’re expected to. Directors are required to exercise independent judgement.

4. Duty to exercise reasonable care, skill and diligence – Gone are the days when board members were chosen just for their name or reputation and never had to do any work. Today, directors are expected to act with a certain level of care, skill and diligence.

5. Duty to avoid conflicts of interest A conflict of interest can happen either when: You’re involved in something that pulls your attention or loyalty away from your role as director. You take advantage of your position to gain personally from an activity or decision. This can include hidden perks, gifts from suppliers or the misappropriation of company assets.

6. Duty not to accept benefits from third parties – Accepting gifts or benefits from third parties, such as a supplier, can be a conflict of interest – especially if the gift is a bribe. These gifts are considered a threat to your objectivity, since you could award business to the supplier who offered you a weekend getaway.

7. Duty to declare interest in proposed transaction or arrangement – This is another type of conflict of interest. If, either directly or indirectly, you’re in any way interested in a transaction or arrangement with the company, you must declare the nature and extent of that interest to the other directors.

If you have any queries or questions about your role and responsibilities as a limited company director then give us a call at 01484 441431, or email our team on hello@itsrelative.co.uk. We are here to help.