What are directors’ duties?

By Katarina Morgan

Senior Associate Solicitor & CEDR Accredited Mediator

02 October 2025

Insights News

For most, being a director of a company is hard work: you’ve put the blood, sweat and tears into setting up your business, building up goodwill and a customer base, securing investors (if applicable) and then getting on with the day-to-day job of running it all. But many may not be aware that that’s only part of their role; directors also have legal duties to the company.

It’s important to remind ourselves that companies are separate legal entities. This means that they have their own legal rights and obligations (separate from its owners and directors), can enter into contracts, own property, and can sue and be sued.

Directors are responsible for the management of the company by exercising the company’s power and managing its operations, finances and activities. They owe several duties to a company which have been developed over the years under common law and equitable principles. These duties were codified as general duties under sections 171-177 of the Companies Act 2006.

The law before the Companies Act 2006 on directors’ duties is still relevant today. The Court will interpret and apply the general duties in a way that reflects the position before the Companies Act 2006.

In addition to the general duties, directors must also consider or act in the interests of the company’s creditors (especially with possible insolvency). They must also uphold the confidentiality of the company’s affairs.

Directors’ general duties under the Companies Act 2006

1.Act within their powers (section 171)

A director must act in accordance with the company’s constitution (i.e. Articles of Association, resolutions passed either by the board or the shareholders), and they can also only exercise those powers granted to them.

2. Promote the success of the company (section 172)

A director must promote the success of the company for the benefit of its shareholders as a whole, by acting in good faith.  

In doing so, they will have regard to, for example, long term consequences of decisions, the interests of employees and business relationships between the company and its suppliers, customers and third parties. In certain circumstances, they will have to consider or act in the interests of the creditors of the company too.

This duty applies to decisions made by each and every director, not just to the board.

3. To exercise independent judgment (section 173)

Directors must exercise their judgment independently and not, for example, defer to the wishes of a shareholder or another director. They also cannot simply agree with a third person to vote at board meetings in a particular way.

Directors are not prevented by acting in accordance with the company’s constitution or any agreements by which the company is bound. They are entitled to take independent professional advice, but they should exercise their own judgment as to whether they follow it.

4. To exercise reasonable care, skill and diligence (section 174)

Directors must exercise reasonable care, skill and diligence as would be exercised by a reasonably diligence person. The test has two limps: objective and subjective. Firstly, they must show that they have the knowledge, skill and experience (the objective test), but where the director has specialist knowledge, skill or experience, the higher subjective standard must be met (the subjective test).

5. To avoid conflicts of interest (section 175)

Directors must not, without the company’s consent, place themselves in a position of conflict. This includes conflicts with their duties owed to the company, their personal interest or duties owed to a third party.

This duty continues after the director ceases to be a director of the company regarding exploiting any property, information or opportunity of which they became aware when they were a director.

6. Not to accept benefits from third parties (section 176)

A director cannot exploit their position as a director for personal benefit without full disclosure of material circumstances. The law is particularly strict for claims brought against a person in a fiduciary position who takes bribes/secret commissions.

Directors must also not accept any benefit from a third party which is given because they are a director, or because they act/do not act in their capacity as a director.

Directors will not breach this duty if they accept a benefit that cannot reasonably regarded as a conflict of interest.

7. To declare interests in proposed transactions or arrangements with the company (section 177) 

Directors may not have an interest in a transaction or arrangement with the company unless the interest has been authorised by the members. If there is an interest (whether directly or not), this must be disclosed to the directors on a full and frank basis.

Consequences of breaching directors’ duties

In the event a director breaches their duties, claims can be brought against them either in civil or criminal proceedings.

The consequences of breach usually include:

• Restitution of profits
• Return of company property
• Setting aside a transaction
• Removal from office
• Injunctive relief
• Damages or compensation
• A fine under criminal law

As the director owes their duties to the company, it is the company who brings these claims, either commenced by a co-director(s) on behalf of the company, and/or a shareholder(s) either through a derivative claim and/or an unfair prejudice petition.

Liquidators can also commence claims under the misfeasance procedure under the Insolvency Act 1986 on behalf of creditors, which could also include director disqualification proceedings.

Tread with caution

Whilst most directors do just want to get on with their day job, they mustn’t forget the legal duties they owe to the company. Sometimes breaches may have been made deliberately, and sometimes inadvertently, in which instance they should take legal advice as soon as possible.

If you have any questions about the contents of the article, or you would like to speak to a member of our Commercial Litigation team, you can contact us here.

Disclaimer: General Information Provided Only
Please note that the contents of this article are intended solely for general information purposes and should not be considered as legal advice. We cannot be held responsible for any loss resulting from actions or inactions taken based on this article.