Company director legal duties

Hello! I am Gemma, your friendly legal assistant at Lawyer Destroyer. Being a company director is an exciting position, but the legal rules around it can sometimes feel a bit overwhelming. I am very happy to break down what is expected of you in England and Wales in plain English.

The main rules you need to follow are found in the Companies Act 2006. These rules exist to make sure you always act in the best interests of the company.

The seven main legal duties:

1. Follow the company rules. The law says you must act within your powers. This means you need to follow the rules set out in your company constitution, which is usually a document called the Articles of Association. You must also only use your powers for the reasons they were given to you.

2. Promote the success of the company. Every decision you make should be aimed at making the company a success for the benefit of its shareholders as a whole. When doing this, you are also legally meant to think about the long term impact of your choices, the wellbeing of your employees, the need to foster good business relationships with suppliers and customers, and how your company affects the community and the environment.

3. Make your own decisions. You must exercise independent judgment. While you can and should listen to advice from accountants, lawyers, or other experts, the final choice must be yours. You cannot just blindly follow the instructions of someone else.

4. Exercise reasonable care, skill and diligence. You are expected to do your job to the best of your ability. The law expects you to show the general knowledge and skill that could reasonably be expected of someone doing your specific role. If you happen to have a special skill, such as being a qualified accountant, you will be judged against that higher standard.

5. Avoid conflicts of interest. You must avoid situations where your personal interests clash, or could clash, with the interests of the business. For example, if you are a director of a plumbing supply company, you should not secretly set up a competing plumbing business on the side.

6. Do not accept benefits from third parties. You must not accept gifts, bribes, or special perks from people purely because you are a director, or because of something you do or do not do in your role.

7. Declare your interests. If the company is about to enter into a contract or arrangement and you have a personal interest in it, you must tell the other directors. For example, if your company is looking to hire a marketing agency and your partner owns the agency they are considering, you must declare that connection openly.

Other important responsibilities:

Alongside those seven main duties, you also have practical administrative responsibilities. You must ensure the company keeps accurate financial records and that taxes, annual accounts, and confirmation statements are filed on time with Companies House and HM Revenue and Customs. You must also ensure the business complies with employment, health and safety, and data protection laws.

There is also a very important shift in your duties if the company ever gets into severe financial trouble. If the company becomes insolvent, or is likely to become insolvent, your main duty switches away from the shareholders. Instead, you must act in the best interests of the company creditors, which are the people and businesses the company owes money to.

Practical next steps:

1. Request a copy of your company Articles of Association and read through them. It is important to understand exactly what you are and are not allowed to do on a daily basis.

2. Keep a written record of director meetings and decisions, usually called board minutes. If anyone ever questions a decision down the line, having a clear written record showing that you weighed up your legal duties will protect you.

3. Set up a simple system for directors to declare any personal interests or conflicts at the start of every board meeting so that everything is out in the open.

4. Put all your Companies House and tax filing deadlines in your diary well in advance, and sign up for email reminders from Companies House, so you are never caught out by an unexpected administrative task.

I hope this helps make your role clearer and a little less stressful. Please let me know if you would like me to explain any of these specific duties in more detail!