The seven general duties of a company director explained

What Are the General Duties of a Director?

When you are appointed as a director of a UK limited company, you automatically take on a set of legal responsibilities known as the general duties. These are not just vague suggestions but are legally binding obligations codified in sections 171 to 177 of the Companies Act 2006. They represent the minimum standard of behaviour expected from you in your role. The duties are owed to the company itself, not to individual shareholders, employees, or creditors (except in specific circumstances, such as when the company is nearing insolvency). This means that only the company (acting through its board or, in some cases, its shareholders) can take legal action against a director for a breach.

These duties apply to all directors, regardless of their title or whether they are paid. This includes executive directors involved in the day-to-day running of the business, non-executive directors who provide oversight, and even individuals who were never formally appointed but act as a director (a 'de facto' director) or who instruct the official directors (a 'shadow' director). The law ensures that anyone controlling or managing a company is held to the same core standards. Understanding these seven duties is fundamental to limiting your personal liability and running a successful, compliant business from day one. They are the foundation upon which all your decisions and actions as a director must be built.

• The duties are set out in the Companies Act 2006.
• They are owed to the limited company itself.
• They apply to all directors: executive, non-executive, de facto, and shadow directors.
• Breaching these duties can lead to personal liability.

Worth knowing: The seven general duties are a legal framework that governs every decision you make as a director, owed directly to the company you manage.

1. Duty to Act Within Powers (s.171)

The first duty requires you to act in accordance with the company's constitution and to only use your powers for the purposes for which they were given (the 'proper purpose' doctrine). Your company's constitution is primarily its articles of association, a key document created during company formation that sets out the rules for running the company. You must know what this document says about your authority. For example, the articles might place limits on the amount of money the company can borrow without shareholder approval or specify procedures for issuing new shares. Acting 'ultra vires', or beyond these powers, is a breach of this duty, even if you believed you were acting in the company's best interests.

The 'proper purpose' element prevents the misuse of directorial powers. A classic example is the power to issue shares. This power is granted to directors to raise capital for the company. If directors were to issue new shares primarily to dilute the voting power of a particular shareholder they disagree with, this would be an improper use of that power and a breach of duty. To comply, you must understand the limits and intended purposes of the powers granted to you in the articles. Always ask yourself: 'Does the constitution permit this action?' and 'Am I using this power for its intended corporate reason?' Documenting your reasoning in board minutes is crucial evidence of compliance.

Worth knowing: You must operate within the rules set out in the company's articles of association and use your directoral powers only for their intended purpose.

2. Duty to Promote the Success of the Company (s.172)

This is often considered the most important duty. Section 172 requires a director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members (shareholders) as a whole. 'Success' generally means long-term increase in value for the shareholders, but the law requires you to consider a specific list of other factors when making a decision. This approach is sometimes called 'enlightened shareholder value'. It means that while your ultimate goal is shareholder benefit, you must achieve it by taking a broader, more responsible view of the business's impact and relationships.

When making any significant decision, you must have regard to all relevant factors, including the six matters listed in the legislation. For instance, when deciding whether to move to a cheaper supplier, you must balance the financial saving against the potential impact on your long-term relationships with suppliers, the effect on your employees if it leads to redundancies, and the company's reputation for quality. The decision is yours to make, but you must be able to demonstrate that you have considered these factors. The best way to do this is to explicitly discuss and record them in board minutes when making key decisions. This creates a paper trail proving you fulfilled your duty.

Worth knowing: Your primary role is to make the company successful for its shareholders, but you must do so by considering the long-term impact on employees, customers, the community, and your reputation.

3. Duty to Exercise Independent Judgment (s.173)

As a director, you are required to exercise your own, independent judgment. You cannot blindly follow the instructions of another person, whether it's a majority shareholder, a fellow director, or even someone outside the company. This duty prevents you from 'fettering your discretion', meaning you cannot agree in advance to vote a certain way in future board meetings. Each decision must be considered on its merits at the time it is made. This is particularly relevant for 'nominee directors'—those appointed by a major investor or parent company to represent their interests. While they can, and should, have regard for the appointor's interests, their overriding duty is to the company they serve and to exercise their own judgment.

However, this duty does not mean you must act in isolation. You are still permitted to rely on professional advice from lawyers, accountants, or other experts, provided you use your own business judgment to critically assess that advice. For example, if your accountant recommends a particular course of action for tax efficiency, you should question it to understand the risks and benefits before agreeing. The final decision must be yours. Similarly, this duty does not prevent you from acting in a way that is authorised by the company's articles or an agreement the company has entered into. The key is that your mind has been applied to the decision, not simply delegated to someone else.

Worth knowing: You must make your own decisions as a director and not simply follow another's instructions, even while considering professional advice.

4. Duty to Exercise Reasonable Care, Skill, and Diligence (s.174)

This duty sets the standard of competence expected of you. It has a two-part test. The first part is objective: you must demonstrate 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 of a director. This sets a minimum baseline. For example, any director is expected to have a basic understanding of the company's finances. You cannot claim ignorance of a major financial problem if the information was available in the management accounts you should have been reviewing.

The second part of the test is subjective and can raise the standard expected of you. You must also demonstrate the care, skill, and diligence that you *actually* have. If you have specialist expertise, such as being a qualified accountant, a lawyer, or a marketing expert, you will be held to a higher standard in matters relating to that specialism than a director without that background. For instance, if a company fails due to poor financial management, a director with an accounting qualification would likely face greater scrutiny and be more easily found in breach of this duty than their colleagues. To comply, you must stay informed about the company's affairs, attend board meetings, scrutinise information presented to you, and ask probing questions.

Worth knowing: You must meet a minimum standard of competence, but if you have specialist skills, you'll be held to a higher standard in that area.

5. Duty to Avoid Conflicts of Interest (s.175)

This duty requires you to avoid any situation in which you have, or could have, a direct or indirect interest that conflicts, or could possibly conflict, with the interests of the company. This is a very strict duty and applies particularly to the exploitation of any property, information, or opportunity, even if the company itself could not take advantage of it. A conflict of interest arises where your personal interests, or duties you owe to another person or company, are at odds with the duty you owe to this company. The principle is that you cannot serve two masters, nor can you allow your personal interests to sway your corporate decision-making.

Common examples of conflicts include being a director or major shareholder of a competing business, owning a property that your company wishes to lease, or personally taking up a business opportunity that was first offered to your company (a 'corporate opportunity'). The Companies Act 2006 provides a mechanism to manage these situations. If you find yourself in a potential conflict, it can be authorised by the other directors on the board, provided they are not themselves conflicted and the company's articles of association do not prohibit it. It is crucial to follow a formal procedure for this authorisation to be valid.

1. 1

   Identify a potential conflict of interest as early as possible.

2. 2

   Declare the full nature and extent of your interest to the other directors immediately.

3. 3

   Abstain from any board meeting discussion and voting on the matter relating to the conflict.

4. 4

   Ensure the other directors consider the matter and, if appropriate, formally authorise the conflict in accordance with the company's articles.

5. 5

   Record the declaration, discussion, and the board's decision to authorise (or not authorise) the conflict in the board minutes.

Worth knowing: You must avoid situations where your personal interests clash with the company's, and if they do, you must seek formal authorisation from the board.

6. Duty Not to Accept Benefits from Third Parties (s.176)

This duty is an absolute prohibition against accepting a benefit from a third party which is given either because you are a director, or for you doing (or not doing) anything as a director. It is designed to prevent bribery and the influence of your decisions by outside parties. The 'benefit' can be any form of gift, commission, or other advantage, financial or otherwise. Unlike the duty to avoid conflicts of interest, a benefit from a third party cannot be authorised by the board. Accepting such a benefit is always a breach of duty. This rule is very strict; your motives for accepting the benefit are irrelevant.

This duty runs parallel to the criminal offences under the Bribery Act 2010, which can lead to unlimited fines and imprisonment. While the duty under the Companies Act leads to civil liability to the company, a serious case could easily trigger a criminal investigation. The only exception is where acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. This covers routine and proportionate corporate hospitality, such as accepting a modest lunch from a supplier. However, accepting lavish gifts, free holidays, or secret commissions from a potential contractor would be a clear breach. The safest policy is to refuse any benefit that is more than trivial or to declare it to the board and seek guidance.

• What is a prohibited benefit? Lavish gifts, holidays, secret payments, or significant personal discounts from suppliers.
• What might be acceptable? Low-value, conventional corporate hospitality like a working lunch or a branded pen.
• Can the board authorise it? No, this duty is an absolute prohibition.
• What's the risk? Personal liability to repay the benefit's value to the company and potential criminal charges under the Bribery Act 2010.

Worth knowing: You must not accept any benefits from third parties given because of your position as a director, as this is considered a form of bribery.

7. Duty to Declare Interest in a Proposed Transaction (s.177)

This final duty is related to the duty to avoid conflicts but is more specific. If you are in any way, directly or indirectly, interested in a *proposed* transaction or arrangement with the company, you must declare the nature and extent of that interest to the other directors. This duty is anticipatory; it applies *before* the company enters into the contract or arrangement. Its purpose is to ensure the board is fully aware of any potential conflicts before they commit the company to a decision. An 'indirect' interest is key here. For example, if the company is considering hiring a consultancy firm owned by your spouse or civil partner, you have an indirect interest and must declare it.

The declaration must be made before the transaction is entered into. You can do this at a board meeting, or by giving written notice to the other directors. If your circumstances change and an interest arises after a transaction has started, you must declare it as soon as reasonably practicable. A common mistake is for directors in small 'owner-managed' companies to overlook this formality, especially when they are the sole director. While a sole director with no other directors to declare to is exempt, as soon as a second director is appointed, these formalities must be observed for any new transactions. Keeping minutes of board meetings where such declarations are made is essential proof of compliance.

1. 1

   Identify any direct or indirect personal interest in a future contract or arrangement the company is considering.

2. 2

   Before the company enters the transaction, formally declare the full nature and extent of your interest.

3. 3

   Make the declaration at a board meeting or in writing to all other directors.

4. 4

   If your declaration proves to be, or becomes, inaccurate or incomplete, provide a further declaration.

5. 5

   Ensure the declaration is recorded in the minutes of the board meeting.

Worth knowing: If you have a personal interest in a future transaction the company is planning, you must formally declare it to your fellow directors before it goes ahead.

Consequences of Breaching Your Duties

Breaching any of the seven general duties can have serious personal consequences for a director. As the duties are owed to the company, it is the company that can take legal action against you. The remedies are civil, not criminal (though as noted, some actions like bribery can also be crimes). A court can order a variety of remedies depending on the breach. You could be ordered to account for any profits you made from the breach, for example, by personally taking a corporate opportunity. You could also be required to pay damages or compensation to the company for any loss it suffered as a result of your actions, such as a negligent decision that cost the company money.

In some cases, a transaction entered into in breach of duty can be reversed. For example, if a director sells a personal asset to the company at an inflated price, a court could order the transaction to be set aside. You could also face an injunction to stop you from proceeding with a planned breach. Beyond financial penalties, a significant breach of duty can lead to your disqualification as a director for a period of 2 to 15 years, preventing you from being involved in the management of any company. Directors' and Officers' (D&O) liability insurance can offer some protection, but it will not cover fraudulent or dishonest acts.

Worth knowing: Failing to comply with your duties can result in personal liability to repay losses, account for profits, and even disqualification as a director.

Putting Duties into Practice: A Director's Toolkit

Complying with your duties is not a one-off task but an ongoing process of good corporate governance. The key is to be able to demonstrate that you have made decisions in a considered and informed manner. The single most important tool for this is holding regular, formal board meetings and keeping detailed minutes. These minutes are the official record of the company's decision-making process and provide crucial evidence that you have considered the relevant factors (s.172), declared interests (s.177), and exercised independent judgment (s.173). The minutes should record not just the decision itself, but the key points of discussion and the reasons for it.

Beyond board meetings, you should ensure you fully understand your company's business and financial position. This means regularly reviewing management accounts, sales forecasts, and cash flow statements. For the 2025/26 tax year, being aware of thresholds like the £90,000 VAT registration point or the Corporation Tax rates (19% up to £50,000 profit, 25% over £250,000) is part of exercising financial diligence. Don't be afraid to ask questions and challenge information presented to you. Finally, know when to seek professional advice. If you are dealing with a complex legal, financial, or HR issue, consulting with a solicitor, accountant, or HR specialist is a vital part of exercising reasonable care (s.174).

Worth knowing: Proactive governance through regular board meetings, detailed minutes, and seeking expert advice is the best way to demonstrate compliance with your duties.

Common questions

Official sources & further reading

This guide draws on the official guidance below. Rules, fees and individual circumstances can change; check the relevant source before acting.

• Companies Act 2006, Part 10, Chapter 2: The General Duties of Directors
• GOV.UK: Being a company director
• Companies House: Guidance on directors' responsibilities

General UK information, primarily for private companies limited by shares. This is not personalised legal, tax or financial advice. An accountant or solicitor can help apply the rules to your situation.