Company directors are primarily responsible for the management of their companies and, generally, their duties are owed to the company. However, they also owe duties to the owners as a whole. In addition, they have responsibilities in respect of the company’s employees and its trading partners, and under statute these duties may be supplemented or modified by a company’s articles of association. Furthermore, many directors will be subject to service agreements (contracts of employment) which may augment these duties.
Directors are responsible for ensuring that the company complies with the various requirements imposed upon it by law.
Although generally the company is liable for any failure to comply with legal requirements, in certain circumstances the directors can be held personally liable where the default was due to their neglect or connivance.
In the UK, the Companies Act 2006 codifies certain key duties of directors. It sets out a statutory statement of seven general duties:
1. A duty to act in accordance with the company’s constitution and only to exercise powers for the purposes for which they are conferred.
2. A duty to act in a way which a director considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
3. A duty to exercise independent judgement.
4. A duty to exercise reasonable care, skill and diligence.
5. A duty to avoid conflicts of interest.
6. A duty not to accept benefits from third parties.
7. A duty to declare to the other directors an interest in a proposed transaction or arrangement with the company.