This guidance has been produced primarily for quoted public companies that are looking to provide directors with practical guidance on their general duties under the Companies Act 2006 (the Act). However much of the note can also be applied to private companies. It is important to note that directors will have obligations and responsibilities beyond the general statutory duties covered in this guidance.
Directors' general statutory duties
These duties are set out under sections 171–177 of the Act, with supplementary provisions set out under sections 178–182. The individual duties are not to be looked at in isolation because, as section 179 states, more than one of the general duties may apply in any given case. Directors must act in accordance with their company’s constitution and companies may, through their Articles of Association (Articles), go further than the general duties by placing more onerous requirements on their directors. However, the Articles may not dilute the duties set out in the Act except to the extent that this is permitted by sections 173, 175, 180(4) (a) and (b) and 2321.
These general duties are owed to the company, for the benefit of members as a whole; not directly to its shareholders. If a director breaches their duties, they could face civil action and, in some cases, criminal sanction. For example, section 183 makes it a criminal offence for a director to fail to comply with the requirements of section 182 (declarations of interest) and, under Part 11 of the Act, members can, in certain circ*mstances, bring a derivative claim against an individual director on behalf of the company. The general duties are owed by a de facto director or shadow director in the same way and to the same extent that they are owed by a properly appointed director.
This document includes:
- The duty to act within powers
- The duty to promote the success of the company
- The duty to exercise independent judgment
- The duty to exercise reasonable care, skill and diligence
- The duty to avoid conflicts of interest
- The duty not to accept benefits from third parties
- The duty to declare an interest in a proposed transaction or arrangement
- The declaration of interest in existing transaction or arrangement
- Consequences of breach of duty
- Section 172 reporting requirements
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FAQs
The duty to promote the success of the company. The duty to exercise independent judgment. The duty to exercise reasonable care, skill and diligence. The duty to avoid conflicts of interest.
What are the director's duties under the Companies Act 2006? ›
The duty to promote the success of the company. The duty to exercise independent judgment. The duty to exercise reasonable care, skill and diligence. The duty to avoid conflicts of interest.
What is the Companies Act 2006 summary? ›
The Companies Act 2006 is legislation that governs companies in the UK in just about every way a company is managed, run and financed. It took over from the Companies Act 1985 and was implemented in stages, the last starting in 2009, and provided public and privately run companies in the UK with common corporate laws.
What are the fiduciary duties of directors under the companies Act? ›
Fiduciary duty requires that directors be loyal and faithful to the company. This means they may only consider the best interests of the company when making a decision. In its extreme form, everything that they do as directors must promote or advance the interests of the company.
What is an example of breach of director's duties? ›
For example, allocating too many shares to an individual with views sympathetic to the director may not be in the company's best interests. In addition, they may not exceed the limits of the powers and authority given to them.
What are the 7 duties of a director? ›
Quick links
- Act within powers.
- Promote the success of the company.
- Exercise independent judgment.
- Exercise reasonable care, skill and diligence.
- Avoid conflicts of interest (a conflict situation)
- Not accept benefits from third parties.
- Declare interests in proposed or existing transactions or arrangements with the company.
What are Directors' Duties? Directors have legal duties to promote good governance of company affairs and to ensure that they act in the company's best interests rather than their own. A company's constitution and shareholders agreement may impose additional duties on a director.
What is the definition of members of the Companies Act 2006? ›
112The members of a company
(1)The subscribers of a company's memorandum are deemed to have agreed to become members of the company, and on its registration become members and must be entered as such in its register of members.
What is the Companies Act 2006 the Annual Strategic directors Report? ›
(1)The purpose of the strategic report is to inform members of the company and help them assess how the directors have performed their duty under section 172 (duty to promote the success of the company). (b)a description of the principal risks and uncertainties facing the company.
What is the main purpose of the companies Act? ›
What is the aim of the Companies Act? The Companies Act aims, amongst others, to specify the relationship between all parties involved in the company, i.e. shareholders, members and directors as stakeholders.
The fiduciary duties of directors are continuing to evolve, again without formal written law. The classic statement, still found in many American law school textbooks, is that directors owe to shareholders, or perhaps to the corporation, two basic fiduciary duties: the duty of loyalty and the duty of care.
Do all directors have fiduciary duties? ›
Fiduciary duties are owed by all directors, including shadow and de-facto directors who aren't registered with Companies House.
What are the three main fiduciary duties? ›
Specifically, they have to comply with three fiduciary duties: care, obedience and loyalty. If board members understand and embrace these responsibilities, they can fulfill those duties and hold their fellow board members accountable to do the same.
What are the directors responsibilities statement for the Companies Act 2006? ›
(1)A director of a company must exercise reasonable care, skill and diligence. (b)the general knowledge, skill and experience that the director has.
What consequences if any do directors face for a breach of fiduciary duty? ›
The shareholders would have to show the court that the director breached his or her fiduciary duty and also show that such a breach resulted in a loss for the shareholders. If such a breach were proven then the court could order the director to pay compensatory damages to the shareholders.
What is the remedy for breach of directors duties? ›
Remedies for a breach of directors duties
Depending on the nature of the breach and the source of the directors duty, a court may grant one or more of the following remedies: An award of damages or compensation. An order entitling the claimant to any improper profits made by a director.
What are the statutory duties of a director according to the Companies Act? ›
Avoid conflicts of interest
A director has a statutory duty to avoid any situations in which he has, or could have, a direct or indirect interest that conflicts, or could conflict, with the interests of the company (CA 2006, s175).
What are the different duties of a director in a company as per the Companies Act 2013? ›
His duties are listed in the section as under: (i) He has to act in good faith in order to promote the objects of the company for the benefit of its members as a whole. (ii) He has to act in the best interest of the company, its employees, shareholders, community and for the protection of environment.
What is the director's primary responsibility? ›
As the primary visionary and unifying force behind a theatrical production, the director is responsible for shaping every aspect of the final performance—from the actors' performances to the setting and design choices.
What are the duties of directors under section 177? ›
Section 177(1) CA 2006 provides that a director must declare the nature and extent of any interest they may have in relation to a proposed transaction or arrangement with the company to the other directors.
