As a director of a company, there are several duties that you must adhere to in order to act in the best interests of the company and its members.
These duties are set out in the Companies Act 2006 and are often referred to as the “seven duties of a director.” Here, we will explore each of these duties in more detail.
- 1. Act within the powers of the company’s constitution.
The first duty of a director is to act within the powers of the company’s constitution. This means that you must be familiar with the company’s articles of association and any other governing documents, and you must ensure that all actions taken by the company are within the scope of these documents.
- 2. Promote the success of the company
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 members as a whole, and in
doing so have regard (amongst other matters) to:-
-
- 1. The likely consequences in the long term,
- 2. The interests of the employees,
- 3. The need to foster the company’s business relationships with suppliers, customers and others,
- 4. The impact on the community and environment,
- 5. Maintaining a reputation of high standards,
- 6. Acting fairly between company members
- 3. Exercise independent judgement.
The third duty of a director is to exercise independent judgment. This means that you must make decisions based on your own judgment and not be influenced by the opinions of others. It is important to gather all relevant information and consider all options before making a decision.
- 4. Exercise reasonable care, skill and diligence.
The fourth duty of a director is to exercise reasonable care, skill, and diligence. This means that you must take the time to fully understand the issues at hand and make informed decisions. You should also ensure that you have the necessary skills and knowledge to fulfill your role as a director.
- 5. Avoid conflicts of interest.
The fifth duty of a director is to avoid conflicts of interest. This means that you must not place yourself in a position where your personal interests conflict with those of the company. If you do find yourself in such a position, you must declare the conflict and take steps to ensure that the interests of the company are protected.
- 6. Not to accept benefits from third parties.
The sixth duty of a director is not to accept benefits from third parties. This means that you must not accept any gifts or favours from suppliers, customers, or other parties that could be seen to compromise your independence as a director.
- 7. To declare an interest in proposed transactions or arrangements.
The seventh duty of a director is to declare an interest in proposed transactions or arrangements. This means that if you or a connected person have an interest in a proposed transaction or arrangement, you must declare that interest to the other directors and take steps to ensure that the interests of the company are protected.
Why does this apply to me?
The Companies Act 2006 is a crucial piece of legislation that lays down the legal framework for how companies operate in the UK. For company directors, this act is particularly important because it sets out their duties and responsibilities when running a company.
The act requires directors to act within the powers of the company’s constitution and to promote the success of the company. However, this duty is not absolute, and directors must exercise their powers in a way that they consider, in good faith, is most likely to promote the success of the company.
The act also requires directors to exercise independent judgement, exercise reasonable care, skill and diligence, and avoid conflicts of interest. This means that directors must act honestly and with integrity, putting the interests of the company and its stakeholders above their own.
In addition, the act prohibits directors from accepting benefits from third parties and requires them to declare any interests in proposed transactions or arrangements. This is to ensure that directors act in the best interests of the company and do not engage in any actions that could be perceived as a conflict of interest.
The Companies Act 2006 is essential to company directors as it clearly defines the specific legal framework for their duties and responsibilities. By adhering to the act’s provisions, directors can ensure that they are acting in the best interests of the company and its stakeholders, while also avoiding any legal or ethical issues that could arise from non-compliance.
Want to learn more about your duties as a business leader? Get in touch to have a conversation with our expert team.