Directors' duties and responsibilities in the UK

Sections 171 to 177 require a director to: act within powers conferred by the constitution; promote the success of the company for the benefit of members as a whole; exercise independent judgement; exercise reasonable care, skill and diligence; avoid conflicts of interest; not accept benefits from third parties; and declare any interest in a proposed transaction.

The duty to promote success under section 172 requires directors to have regard to long-term consequences, employee interests, relationships with suppliers and customers, community and environmental impact, reputation, and fairness between members. It is a decision-making framework as much as a standard, and minutes should show it was applied.

The standard is objective and subjective: the care, skill and diligence expected of a reasonably diligent person with the general knowledge and experience reasonably expected of someone in that role, and with the actual knowledge and experience the director in fact has. A qualified accountant on the board is held to a higher financial standard than a lay director.

In practice this means attending meetings, reading the papers, asking questions, seeking professional advice on matters outside your competence, and not simply deferring to a dominant founder or executive. Delegation is permitted; abdication is not.

Directors must avoid situations where their personal interests conflict, or may conflict, with the company's. In private companies, unconflicted directors can authorise a conflict if the articles permit — check the articles, as model articles include this power for private companies.

Interests in proposed transactions must be declared before the transaction is entered into; interests in existing transactions must also be declared. Certain transactions need shareholder approval, including substantial property transactions with a director, loans to directors and long-term service contracts exceeding two years. Record declarations in the minutes.

Directors are responsible for keeping adequate accounting records, preparing and filing annual accounts, filing the confirmation statement, maintaining statutory registers, and keeping the register of people with significant control accurate. Late filing brings automatic penalties and, in persistent cases, disqualification proceedings.

Reforms under the Economic Crime and Corporate Transparency Act 2023 introduced identity verification for directors and people with significant control, along with stronger Companies House powers. Directors should ensure the company's records and their own verification status are current.

When a company is, or is likely to become, insolvent, directors' duties shift towards the interests of creditors. Continuing to trade when there was no reasonable prospect of avoiding insolvent liquidation can lead to a wrongful trading contribution order under section 214 of the Insolvency Act 1986.

Other personal exposures include fraudulent trading, misfeasance, preferences and transactions at an undervalue, personal guarantees given to lenders and landlords, and unpaid PAYE or VAT in defined circumstances. If solvency is in doubt, take insolvency advice immediately, meet frequently, and minute the reasoning behind every decision to continue.

Directors are judged on process as well as outcome. Regular board meetings with agendas, circulated papers, recorded attendance and substantive minutes are the primary evidence that duties were discharged. Minutes should record the factors considered — including section 172 factors — not merely the resolution passed.

Consider directors' and officers' liability insurance, and check whether the articles include an indemnity to the extent permitted by law. Neither protects against fraud or dishonesty, but both matter where an honest decision is later challenged.