22nd Jul 2022

Directors Duties: 7 Legal Responsibilities You Need to Know About

Dave Gibson picture

Dave Gibson

Co-Founder and CEO

Directors have a never ending to do list, trust us we know how it feels!

Your legal responsibilities may feel like they’re at the top of your daily list, but it’s important not to let them slip and to keep them front of house!

Legal responsibilities!? What legal responsibilities? Relax, we’re about to run through some of them – specifically those enshrined in the Companies Act 2006.

Firstly, along with running the company, you’re responsible for making sure accurate information is submitted to Companies House. And that it’s submitted on time, as late submissions could land you with a fee. Incorrect submissions could result in you needing to step down from being company director and even jail time.

There are seven set duties specified within the Companies Act 2006, which are:

1. Company’s constitution

Company’s constitution refers to the written rules, documents and articles of association that apply to your business. They outline important information about your company, including what powers you have as director and what’s intended by your responsibilities.

When you first register your company, you need a memorandum of association. This is a legal statement authorised by the directors specified on formation.

This legal agreement is part of your company’s constitution, and you need to keep it up to date. You’ll need to keep track of any specific changes, a record of incorporation and your current state of capital (known as the CAP table).

2. Promote the success of the company

You’re legally required to act in your business’s best interests. This means you need to promote its success and make informed decisions for both the short term and long term.

Part of acting in the company’s best interests also includes:

  • Considering the impact of your decisions and any changes upon your employees
  • Supporting the business relationships with customers, stakeholders, clients and others
  • Consider the impact of your work on the community and environment
  • Implementing high standards of business conduct
  • Acting with integrity and fairness

3. Independent judgement

This shouldn’t come as a surprise but legally, you must not allow others to control or influence your decisions and powers as director.

4. Exercise reasonable care, skill and diligence

On a day-to-day basis you need to perform to the best of your ability, with diligence and reasonable care.  You are expected to demonstrate those attributes as would be expected of anyone acting as a director.

5. Avoid conflicts of interest

This one also shouldn’t be a shock. You’re legally required to avoid situations where your loyalties could be questioned or where a conflict of interest may arise.

This also applies to the interests of your family. If you find there’s a conflict of interest, you must notify other directors and members of your team as soon as you possibly can.

6. Third party benefits

You must not accept any third-party benefits at any time unless it cannot reasonably be seen as likely to give rise to a conflict of interest. This includes being offered exclusive discount and freebies.

If you’re offered hospitality, e.g. another business person pays for you to have a meal, your company may decide that it isn’t a conflict of interest, so long as no exchanges of goods or services are happening in exchange for the meal. If you’re unsure about accepting a third-party benefit, speak with your wider team.

7. Interests in a transaction

If you’re going to personally benefit from a business transaction, you’re legally required to notify other directors.

An example would be, you’re about to enter into an agreement with another company which is owned by one of your family members. Another example could be your company is going to purchase stock from a company owned by your partner.

Other responsibilities

This should be common sense really but, let’s remember that your version of common sense may not be as specified in law! You’re legally not allowed to misuse company property. You’re also expected to apply confidentiality to everything your company does.

Shorten your to do list

Our team can help you tick some of your legal responsibilities off that very long to do list. Get in touch to chat to an expert about keeping everything in line on Companies House.