Company director legal duties

Hello, I am Gemma, your friendly legal assistant at Lawyer Destroyer. Taking on a company directorship is a great achievement, but it does come with some strict legal responsibilities under the law of England and Wales.

Do not worry though, these rules are mostly about acting honestly, carefully, and making sure the company's interests come before your own. In England and Wales, your main duties are set out in the Companies Act 2006.

The seven main duties of a director:

1. Act within your powers. You must follow the rules set out in your company's constitution, which is usually a document called the articles of association. You must only use your powers for the reasons they were given to you.

2. Promote the success of the company. You must act in a way that you honestly believe will benefit the company and its shareholders as a whole. When making decisions, you must think about the long term consequences, the interests of your employees, your relationships with suppliers and customers, and the impact of the company on the community and the environment.

3. Exercise independent judgement. You must make your own decisions. While you can take advice from experts, you cannot just blindly follow what another director or shareholder tells you to do, and you cannot restrict your ability to make free choices in the future.

4. Exercise reasonable care, skill, and diligence. You must perform your role competently. The law expects you to use the general knowledge and skills that could reasonably be expected of someone doing your job. If you have a special skill, such as being an accountant or an IT expert, you are expected to use that higher level of skill for the company's benefit.

5. Avoid conflicts of interest. You must not put yourself in a position where your personal interests, or your duties to another person or business, clash with the interests of the company.

6. Do not accept benefits from third parties. You must not accept bribes, secret commissions, or inappropriate gifts from anyone as a result of being a director or doing your job.

7. Declare any interest in a proposed transaction or arrangement. If the company is planning to enter into a contract or do business with someone, and you stand to benefit from it personally, you must tell the other directors about your interest before the deal goes ahead.

Other important responsibilities:

1. Filing requirements. You are responsible for ensuring the company keeps accurate records and files its annual accounts and confirmation statements with Companies House on time. You must also ensure the company pays its taxes to HMRC.

2. Health, safety, and employment. You have a duty to ensure the company provides a safe working environment and complies with employment laws.

3. Financial difficulties. If the company starts dropping into serious financial trouble and might not be able to pay its debts, your legal duties shift. Instead of acting in the best interests of the shareholders, you must act in the best interests of your creditors, meaning the people the company owes money to. If you keep trading and making things worse when the company is hopelessly insolvent, you could be held personally liable for the company's debts.

Practical next steps for a new director:

1. Read the company articles of association. Ask for a copy of this document so you understand exactly what the company rules are and what limits are placed on your powers.

2. Keep clear written records. Make sure that board meetings are minuted and that the reasons for major decisions are written down. If your decisions are ever questioned in the future, good paperwork is your best defence.

3. Be actively involved. There is no such thing as a sleeping director in the eyes of the law. Even if you are not involved in the day to day running of the business, you must keep yourself informed about what the company is doing and check the financial position regularly.

4. Keep your finances separate. Never mix your personal money with the company's money, and be very careful about taking loans from the company.

Please let me know if you would like me to explain any of these duties in more detail, or if you have a specific situation you are dealing with right now!