A guide to the duties and responsibilities of limited company directors

What is a company director?

A limited company in the UK can have another corporate entity as a director but they must also have at least one real (human) director.

Directors are legally responsible for running the company and have various duties and responsibilities which we outline below. 

A shareholder, who holds shares in a company, is different to a director, although a shareholder can also be a director. This is particularly common for small limited companies in which the director or directors own all the shares.

Who can be a company director?

A director must be aged 16 or over and not disqualified from being a director or an undischarged bankrupt.

A director does not have to live in the UK.

What are the statutory duties of a company director?

The seven legal duties of a company director are set out in the Companies Act 2006. They are:

Duty to act within powers

Company directors must understand and only act within the powers set out for them in the company’s constitution and articles of association.

These legal documents are created when a limited company is set up and outline the rules for running the company as agreed by its directors and company secretary. 

Duty to promote the success of the company

Directors must act in a way that is most likely to promote the success of the company as a whole.

As outlined in the Companies Act 2006, directors must consider the following:

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

Since the start of 2019, a new reporting requirement means that larger companies (over 250 employees) must explain how they have fulfilled this duty in their annual report.

Duty to exercise independent judgement

Directors can seek and accept the advice of others but they must use their own independent judgement and consider the interests of the company when making a final decision.

A director therefore needs to form their own view, and this may require additional effort – especially where they are not familiar with all of the company’s activities.

Duty to exercise reasonable care, skill and diligence

Directors are expected to perform their role to the best of their ability.

They must use any knowledge, skills, experience, qualifications that they possess to help them carry out their duties.

Duty to avoid conflicts of interest

Directors must avoid conflicts of interest which are situations where their loyalties might be divided.

If a possible conflict of interest does occur, other directors and members must be told and any processes outlined in the company’s articles of association must be followed.

Duty not to accept benefits from third parties

A company director must not accept benefits given to them by third parties because they are a director. This is to avoid conflicts of interest.

Some benefits, such as corporate hospitality and other gifts, may be acceptable and authorised by the company if there is definitely no conflict of interest.

Duty to declare interest in proposed transaction or arrangement

If a director personally benefits from a transaction carried out by the company, they must inform other directors or members. An example is a contract agreed with a business owned by the director’s spouse or a member of their family.

What are the other responsibilities of company directors?

Company directors have several other responsibilities. To ensure legal obligations are fulfilled, it is recommended that directors use the services of a professional accountant, although directors always remain legally responsible for ensuring that the tasks are carried out according to the law.

The responsibilities include:

• maintaining accurate accounting records.
• submitting company accounts on time to Companies House.
• submitting corporation tax returns and paying corporation tax.
• filing a confirmation statement with Companies House every 12 months.
• producing and maintaining a register of persons with significant control.
• notifying Companies House of any change in the company’s officers or personal details.
• notifying Companies House of a change to the company’s registered office.

What are the consequences of a director not upholding their duties?

Even though a company is a separate legal entity from its directors, a director can sometimes be held personally liable if duties are breached or illegal activity occurs. For example, a breach of company law may, in some instances, be a criminal offence for which the company and every director who is in default may be liable.

Directors can also be fined under rules to which the company is subject. For example, the Privacy and Electronic Communications (EC Directive) Regulations 2003 allows directors to be fined for breaching of marketing rules.

You can also be banned or disqualified from being a director if you don’t meet your legal responsibilities. For example, if your conduct is deemed to be unfit.

Unfit conduct includes the following:

• allowing a company to continue trading when it can’t pay its debts
• not keeping proper company accounting records
• not sending accounts and returns to Companies House
• not paying tax owed by the company
• using company money or assets for personal benefit

How TaxAssist Accountants can help

We can help you comply with your duties as a company director. To find out more about our services for limited companies and how they can benefit your business, fill in the enquiry form here or call 01329 623103 to book a free video or face-to-face consultation.

Last updated: 20th March 2024