Top 5 frequently asked questions about statutory duties of directors

1. What are the statutory duties of directors?

The Companies Act 2006 (the main piece of company law in the UK) contains a number of statutory duties of directors, which includes:

1. Duty to act within powers (s171) - The statutory duties of directors include a duty to act within their 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.

2. 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.

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

4. 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.

5. 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).

6. 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.

7. 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 interest.

Find out more about directors’ duties here.

2. How can a director declare an interest in a proposed transaction or arrangement?

Declarations of interests can either be made:

• at a board meeting; or

• by providing notice in accordance with s184 or 185 of the Companies Act.

The declaration must be made before the company enters into the transaction or arrangement.

Where a declaration is made at a board meeting, it should be recorded in the minutes of that meeting. Docue’s board minutes template contains standard wording that can be used for the declaration of interests.

3. What is meant by the "duty to promote the success of the company"?

One of the statutory duties of directors is to promote the success of the company. S172 of the Companies Act states that 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, and in doing so have regard (amongst other matters) to:

• the likely consequences of any decision in the long term;

• the interests of the company's employees;

• the need to foster the company's business relationships with suppliers, customers and others;

• the impact of the company's operations on the community and the environment;

• the desirability of the company maintaining a reputation for high standards of business conduct; and

• the need to act fairly as between members of the company.

Find out more about this duty here.

4. What happens if a director breaches its statutory duties of directors?

Breaching the statutory duties of directors can lead to consequences for both directors and the company. This could range from termination of a director’s contract/appointment to disqualification as a director. In some cases, the company may also be able to bring a damages claim against the director.

Find out more about the consequences of breaching directors’ duties here.

5. Except for the statutory duties of directors, do directors have any other legal responsibilities?

Yes, directors also have other responsibilities under UK company law.This includes:

• complying with the company’s articles of association;

• keeping company records and reporting changes;

• filing accounts and tax returns; and

• paying corporation tax.

Sign up now to use Docue’s board minutes and other corporate templates.