Where there is legal responsibility there’s the possibility of breaking the law and in some cases facing disqualification, fines, reputational damage or even legal action. It pays to get it right.
As a company director you play a pivotal role in making sure your business operates lawfully, ethically, and effectively. Even if you are the only director, with no board of other executive directors or non-executive directors to work with, the duties and responsibilities still apply and it’s down to you.
You may have outsourced some of the work of complying with the responsibilities to accountants or legal advisers, but the buck ultimately stops with you. Individual directors (and that includes de facto and shadow directors, about whom there’s more below) have statutory duties under the Companies Act 2006, as well as broader responsibilities under UK law and governance best practices.
I’m not sure I thought as much as I should have about those duties until I became a non-executive director on another company’s board and a charity trustee. Directors have obligations on them in companies of all sizes and we need to do more about making the information available, accessible, comprehensible and concise for anyone who might need to know.
I’m outlining the key ones here, and if they raise more questions than answers talk to your accountant or legal adviser to be sure you’re doing all the right things. The consequences of getting things wrong can be onerous.
Statutory duties under the Companies Act 2006: These are the magnificent seven:
- Act within powers
Your powers as a director are set out in the company’s constitution and you can only exercise them for the purposes for which they were conferred. - Promote the success of the company
Directors must act in good faith to promote the success of the company for the benefit of its members. That means you need to consider long-term consequences, employee interests, relationships with suppliers and customers, community impact, and environmental sustainability. - Exercise independent judgment
Directors must make decisions independently, without allowing yourself to be influenced by others, and you have to be sure you aren’t just rubber-stamping the views of everyone else at the meetings. - Exercise reasonable care, skill and diligence
You have to operate with the care, skill, and diligence that would be expected from a reasonably competent person in your position, taking into account your own knowledge and experience. - Avoid conflicts of interest
Directors must avoid situations where their personal or financial interests conflict, or may conflict, with those of the company. If you think there could possibly be a conflict declare it. - Not to accept benefits from third parties
Directors must not accept gifts, hospitality, or other benefits from third parties that could compromise their independence or decision-making. - Declare interest in proposed transactions or arrangements
Directors must declare any direct or indirect interest in a proposed transaction or arrangement with the company to the other directors.
The other legal responsibilities
Filing and reporting obligations
Directors are responsible for making sure reports to Companies House are timely and accurate, including:
- Annual accounts and confirmation statements
- Changes to company officers or registered office
- Event-driven filings (e.g. how shares are allotted)
Financial oversight
Directors must make sure the company keeps proper accounting records and complies with tax laws including:
- Corporation tax
- PAYE and national insurance
- VAT
Employment law compliance
Directors must make sure employees are fairly treated and their employment rights are applied including:
- Contracts and working conditions
- Health and safety obligations
- Anti-discrimination and equality duties
Data protection and privacy
Under the UK GDPR and Data Protection Act 2018, directors must make sure personal data is handled according to the law, including:
- Transparency and consent
- Data security and breach reporting
- Rights of data subjects
Liability and risk
While limited liability protects shareholders, directors can be held personally liable in certain circumstances, including:
- Wrongful or fraudulent trading
- Breach of fiduciary duties
- Failure to comply with statutory obligations
Directors may also face disqualification under the Company Directors Disqualification Act 1986 for misconduct or repeated non-compliance.
Best practice governance for small companies
While small companies may not have formal boards or governance structures, directors should still:
- Keep clear records of decisions and meetings (e.g. accurate minutes)
- Establish internal controls and risk management processes
- Engage with stakeholders transparently
- Seek professional advice when needed
If some of this is new to you, you could sign up to the IoD foundations of the boardroom course which is free and helps with all of the above. There is also an IoD code of conduct for directors which will help and that’s also free.
Being a director is a privilege that brings with it serious legal responsibility. It’s important for you and for the company that you fully understand and regularly review your obligations and get advice and support to make sure you are complying with the law and good governance.
A de facto director is someone who acts as a director, even though they haven’t been formally appointed. A shadow director is someone who doesn’t officially act as a director but whose instructions or advice the actual directors usually follow. They operate behind the scenes. Both can be held legally responsible in the same way as a formally appointed director.
