Under the Companies Act 2006, a director must:
act within powers (section 171)
You must act in accordance with the company’s constitution, and only exercise your powers for the purposes for which they were conferred.
The company's constitution includes:
- The memorandum and articles of association
- Any resolutions and agreements (such as a shareholders agreement)
promote the success of the company (section 172)
You must endeavour to promote the success of the company for the benefit of the members.
You should have regard 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
- the need to act fairly as between members of the company, as well as any other relevant factor(s).
exercise independent judgment (section 173)
You must make your own decisions, exercising independent judgement, on the company's behalf.
This duty does not prevent you from relying on professional advice as long as you have exercised your own judgement in following the advice.
exercise reasonable care, skill and diligence (section 174)
You must exercise the care, skill and diligence which 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 same functions as you in relation to the company
- the general knowledge, skill and experience that you actually possess.
avoid conflicts of interest (s175)
You must avoid any situation which has or could have a direct or indirect interest that conflicts (or may possibly conflict) with the interests of the company.
You should avoid placing yourself in positions where there is or could be a conflict between the duties owed to the company and personal interests or other duties owed to a third party (which is more likely if you have multiple directorships or other advisory positions).
not accept benefits from third parties (s176)
You must not receive personal benefits by reason of you being a director or doing anything as a director.
This duty is not infringed if the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest.
(a) declare an interest in a proposed transaction or arrangement (s177)
You must declare the nature and extent of an interest in a proposed transaction or arrangement if there is likely to be a conflict of interest, and this must be made to the other directors of the company before the company enters into the proposed transaction or arrangement.
This duty is not infringed if:
- your interest in the transaction cannot reasonably be regarded as likely to give rise to a conflict of interest
- an interest has not been declared because you are unaware that you have the interest or the other directors are already (or ought reasonably to be) aware of it.
(b) declare an interest in an existing transaction or arrangement (s182)
This duty is relevant where you are newly appointed as a director and already have an interest in an on-going transaction which needs to be declared.
This is not legal advice; it is intended to provide information of general interest about current legal issues.