The 7 Legal Duties Every UK Director Must Know

The moment you become a director of a UK limited company, you take on a set of legal duties defined by the Companies Act 2006. These aren't guidelines or best practices — they're statutory obligations, and breaching them can result in personal liability, financial penalties, disqualification, or even criminal prosecution.

Despite this, a surprising number of directors — particularly first-time founders and owner-directors of small companies — are only vaguely aware of what these duties actually require. This guide breaks down all seven in plain English.

Sections 171 to 177 of the Companies Act 2006 set out seven general duties that every director owes to the company. Not to shareholders individually, not to employees, and not to themselves — to the company as a legal entity. Here's what each one means in practice.

You must act in accordance with your company's constitution — primarily its articles of association — and only use your powers for the purposes they were intended. You cannot, for example, issue new shares purely to dilute a shareholder you disagree with, or use company funds to pursue personal interests. If the company's articles don't authorise something, you can't do it.

This is arguably the most important duty. You must act in a way that you honestly believe would most likely promote the success of the company for the benefit of its members (shareholders) as a whole. In making decisions, the Act specifically requires you to have regard to the likely consequences of decisions in the long term, the interests of employees, relationships with suppliers and customers, the impact on the community and environment, the desirability of maintaining a reputation for high standards of conduct, and the need to act fairly between members.

This doesn't mean you need to formally consider every factor for every decision. But for significant decisions, you should be able to demonstrate that you considered these broader interests — not just short-term profit.

You must make your own decisions. You cannot simply defer to another director, a shareholder, or an external adviser without applying your own mind to the matter. This doesn't mean you can't take advice — in fact, you should. But the final decision must be yours, and you must be satisfied that it's the right one.

You're expected to perform to a standard that is reasonable for someone in your position, with both the general knowledge and experience that could reasonably be expected of a person in that role, and any additional knowledge and experience that you personally have. In plain terms: if you're a qualified accountant serving as finance director, you'll be held to a higher standard on financial matters than a director with no financial background.

You must avoid any situation where your personal interests could conflict with the interests of the company. This includes business opportunities — if you discover a commercial opportunity through your role as a director, you cannot take it for yourself without board authorisation. This duty continues even after you leave the company, covering any property, information, or opportunity you became aware of while serving as a director.

You must not accept any benefit from a third party that is given because of your position as a director or because of something you do (or don't do) in that role. This covers bribes, obviously, but also extends to gifts and hospitality that could be seen to influence your decision-making. Unlike conflicts of interest, this duty cannot be authorised by the board — though your company's articles may permit benefits below a specified value.

If you have any interest — direct or indirect — in a proposed transaction or arrangement involving the company, you must declare the nature and extent of that interest to the other directors before the company enters into the transaction. Full and frank disclosure is required. For example, if your company is about to sign a contract with a supplier that you personally have a financial stake in, you must disclose that.

The consequences of breaching your duties can be severe. You may be personally liable to compensate the company for any loss resulting from the breach. Any profits you made from the breach can be claimed back by the company. Transactions entered into in breach of duty can be set aside. You could be disqualified from acting as a director for up to 15 years. In the most serious cases, you could face criminal prosecution.

The best protection is awareness and good governance. Keep proper board minutes that record your reasoning for significant decisions. Declare conflicts of interest promptly and fully. Take professional advice when facing complex decisions. Ensure your company's articles of association are up to date and appropriate. Consider Directors' and Officers' (D&O) insurance to protect against personal liability claims.