What are my statutory duties as a director?
The duties of Directors are incredibly broad. Common law duties will vary depending on numerous factors, including the size of the company and the relationship between the parties. For example, it is not uncommon in smaller companies for the court to treat relationships as quasi-partnerships — creating much broader duties between the parties involved.
The Companies Act 2006, Articles of Association, and any Director Service Agreement will combine to confirm the details of specific duties a director owes.
As well as the above, there are seven core statutory duties owed as a company director.
- To act within the company’s constitution: The company’s constitution is the articles of association that confers certain powers, rights and obligations on directors. As a director, you should understand the constraints and operate within them.
- To promote the success of the company: A director must act in good faith and in a manner most likely to promote the company’s success for the benefit of its shareholders. From 2019, a new reporting requirement specifies that the directors of companies with more than 250 employees must explain how they have fulfilled this duty in their annual report.
- To exercise independent judgment: Directors must demonstrate independent thought and not merely act on the wishes of prominent shareholders. Independent judgment requires a degree of perspective and knowledge of company affairs. Relying on others, including third-party experts, is not the same as exercising independent judgment.
- To exercise reasonable care, skill and diligence: Directors now have to show an aptitude for their duties based on general knowledge, previous experience or specific training and skills like law or accountancy.
- To avoid conflicts of interest and personal benefits: Directors must preserve their objectivity. Conflicts of interest must be disclosed to other board members to protect the integrity of company decision-making. Potential conflicts include a personal relationship between a director and people or entities that the company conducts business with. It also includes personally exploiting information that belongs to the company and receiving gifts or benefits from third parties. Accurate record-keeping is essential for a director to demonstrate that they have discharged their legal duties to the company.
In small to medium size entities, it is not uncommon for a director to also be a shareholder. Where there are concerns over director conduct, it can be helpful to look at that conduct from the perspective of the impact on other shareholders, as well as on a ‘potential breach of director duties’ basis. There can often be overlap with unfair prejudice where the conduct of another shareholder harms shareholder interests.