Every Company Director Needs to Know This (Director’s Duties Part 1)

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There are many reasons that entrepreneurs become company director: potential tax advantages, limited liability, and perceived prestige may be some reasons. Or it may be because other similar businesses have become companies so it may just seem like the thing to do. And companies need directors.

But not all new directors will fully appreciate how different their role is from that of partners or sole traders. One must study the Highway Code and pass an exam to be allowed to drive a car. But how many company directors have read any part of the Companies Act 2006?

Many parts of that act place legal obligations on directors. But by far the most important of these are the seven general duties in Chapter 2 of Part 10 of the act. These are the duties:

  • to act within powers;
  • to promote the success of the company;
  • to exercise independent judgment;
  • to exercise reasonable care, skill and diligence;
  • to avoid conflicts of interest;
  • not to accept benefits from third parties; and
  • to declare an interest in a proposed transaction or arrangement.

In a series of articles over the coming months, members of Longmores’ Dispute Resolution team will look more closely at each these duties and what they actually require of a director. The series will also consider how the priority of a director to manage the company for the benefit of its shareholders may change if the business falls into difficulty and there is a prospect that the company may be or may become insolvent.

The role of director can be rewarding. A director leads a business and manages it daily. But the role can also be challenging. This can be most especially so for those who have only come into the role recently. A mentor in the form of a more experienced director in a similar industry can be helpful. And you will surely come to rely on your accountant and your commercial solicitor. We hope this series of blogs will also be of use to you.

Here to Help

If you are in need of advice from the Dispute Resolution team, please contact John Wiblin, Partner and Head of Dispute Resolution.

Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.