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Directors’ duties are a requirement introduced by the Companies Act 2006 which imposes general duties to a director of a limited company. Call our team for more information on 01206 217326
1. Act within powers
You must act in accordance with the company’s constitution, and only exercise your powers for the purposes for which they were given.
2. Promote the success of the company
You must act in the way you consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. When considering what is most likely to promote the success of the company, the legislation states that a director must have regard to:
Other relevant factors should also be properly considered.
3. Exercise independent judgment
You must exercise independent judgment and make your own decisions.
4. Exercise reasonable care, skill and diligence
You must exercise the same care, skill and diligence that would be exercised by a reasonably diligent person with:
The expected standard is measured against both objective and subjective yardsticks. A directors actual understanding and abilities may not be enough if more could reasonably be expected of someone in his or her position.
5. Avoid conflicts of interest (a “conflict situation”)
You must avoid a situation in which you have, or could have, an interest that conflicts, or may conflict, with the interests of the company. This applies in particular to the exploitation of any property, information or opportunity, regardless of whether the company could take advantage of it.
This duty is not infringed if:
6. Not accept benefits from third parties
You must not accept a benefit from a third party given because you are a director or because you do (or do not do) anything as a director.
This duty is not infringed if your acceptance cannot reasonably be regarded as likely to give rise to a conflict of interest.
7. Declare interests in proposed or existing transactions or arrangements with the company
If you are in any way, directly or indirectly, interested in a transaction or arrangement with the company, you must declare the nature and extent of that interest to the other directors. In the case of a proposed transaction you must do this before it is entered into. In the case of an existing transaction you must do this as soon as reasonably practicable. This duty is not infringed if:
Your general duties are owed to the company which you are a director of and not other group companies or individual shareholders. A breach of a general duty typically gives the company a number of potential remedies including an injunction, damages or compensation. Failure to disclose an interest in an existing transaction or arrangement with the company also carries the risk of a criminal fine.
If a director finds they have acted in a way which breaches the general duties owed to the company, the following help may be available:
It is common for a company to take out directors’ and officers’ (D&O) insurance on behalf of its directors. Policy cover and terms vary but typically deal with directors’ liabilities arising from claims of negligence, breach of duty or other default.
Staff re-order in business directors responsibilities