Checklist of directors duties and responsibilities - stay on top of directors legal responsibilities

Where are directors duties and responsibilities set out?

1. Company law - the Companies Act 2006 (the main piece of company law in the UK) contains a number of directors duties and responsibilities that directors must follow in order to comply with the law.

2. Company documents - a company’s articles of association are akin to a set of rules that must be followed by directors.

What are directors duties and responsibilities?

1. Companies Act 2006 duties

The Companies Act 2006 contains a number of general directors duties and responsibilities that must be followed by directors when making decisions and acting for the company:

• Duty to act within powers (s171) - A director’s duties and responsibilities include a duty to act within powers. This means that a director must:

  • act in accordance with the company's articles of association; and

  • only exercise powers for the purposes for which they are conferred.

• Duty to promote the success of the company (s172) - A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Find out more about this duty here.

• Duty to exercise independent judgment (s173) - When making decisions for or in relation to the company, directors must exercise independent judgment.

• Duty to exercise reasonable care, skill and diligence (s174) - A director of a company must exercise reasonable care, skill and diligence. This means the care, skill and diligence that would be exercised by a reasonably diligent person with:

  • the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company; and

  • the general knowledge, skill and experience that the director has.

• Duty to avoid conflicts of interest (s175) - A director of a company must avoid a situation in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity (and it is immaterial whether the company could take advantage of the property, information or opportunity).

• Duty not to accept benefits from third parties (s176) - A director of a company must not accept a benefit from a third party conferred by reason of:

  • his being a director, or

  • his doing (or not doing) anything as director.

  A “third party” means a person other than the company, an associated body corporate or a person acting on behalf of the company or an associated body corporate.

• Duty to declare interest in proposed transaction or arrangement (s177) - If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, he must declare the nature and extent of that interest to the other directors. The interest can be decorated at a board meeting or given my notice in writing. Docue’s board minutes template includes the option to include wording that deals with directors conflicts of interests.

2. Comply with articles of association

As well as the directors duties and responsibilities set out in the Companies Act 2006, a director must also follow the company’s internal governance rules, as set out in its articles of association. Articles of association set out the rules of how the directors and shareholders must run a company and make decisions. Company law requires every company to have articles of association contained in a single document and divided into numbered paragraphs. Docue’s articles of association template is based on Companies House’s model articles for private companies limited by shares. They incorporate the text of the model articles in full to avoid the need to refer to the new modified clauses separately from the model articles.

3. Keep company records and report changes

Director's legal responsibilities include keeping:

• records about the company itself; and

• financial and accounting records.

The records that a company must keep include keeping details of:

• directors, shareholders and company secretaries;

• the results of any shareholder votes and resolutions;

• promises for the company to repay loans at a specific date in the future(‘debentures’) and who they must be paid back to;

• promises the company makes for payments if something goes wrong and it’s the company’s fault (‘indemnities’);

• transactions when someone buys shares in the company; and

• loans or mortgages secured against the company’s assets.

4. File accounts and tax returns

Directors duties and responsibilities include filing the company’s accounts with Companies House and the company’s tax return with HM Revenue and Customs (HMRC).

5. Pay corporation tax

Directors should oversee the paying of corporation tax by the relevant deadline. This is usually 9 months and 1 day after the end of your company’s ‘accounting period’.

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