Guidance for company directors on their legal duties

Aleena Siddiq, Solicitor

Becoming a director of a company can be an exciting step in an individual’s professional journey, however it can also bring significant legal responsibilities that are often overlooked.

Understanding your duties as a director

Directors are responsible for managing the company in accordance with its constitution (including its articles of association) and the directors’ duties they are legally required to comply with including promoting the success of the business, exercising independent judgment, and acting with reasonable care, skill and diligence, while also balancing the interest of stakeholders. For first-time and experienced directors, understanding these responsibilities and duties and applying them when making decisions will enable them to discharge their duties effectively, minimise risk and contribute to the long-term success of the business.

Directors need to be familiar with the duties and responsibilities they are legally required to adhere to including the statutory duties they owe to the company under the Companies Act 2006 and we can advise directors on these.

Practical support and resources for directors

There are also resources out there that can assist directors to navigate their role as director for example, to assist first-time directors, the Institute of Directors has created a five-week programme called the Boardroom Essentials to give guidance on key areas which directors need to understand such as a director’s duties, risk and oversight, effective boardroom behaviours and decision-making and accountability.

The Institute of Directors has also published the IoD Code of Conduct for Directors, which is designed to provide a practical framework for director decision-making and to promote high standards of ethical leadership across UK organisations. The Code applies to directors in the private, public and not-for-profit sectors and is intended to complement, rather than replace, existing legal and regulatory obligations.

The Code is built around six core principles:

• Leading by Example: Directors should demonstrate professionalism, respect and continuous development while modelling the behaviours expected throughout the organisation.
• Integrity: Directors should act honestly, comply with legal requirements, manage conflicts of interest appropriately and prioritise the interests of the organisation over personal gain.
• Transparency: Boards should adopt openness, encourage speaking-up cultures and communicate clearly and honestly with stakeholders.
• Accountability: Directors should take responsibility for their decisions, remain open to scrutiny and ensure they have the skills and knowledge required to fulfil their role.
• Fairness: Decision-making should be objective, impartial and inclusive, promoting equality of opportunity and respect for all stakeholders.
• Responsible Business: Directors are encouraged to consider the long-term social, environmental and economic consequences of their decisions, including the responsible use of new technologies such as artificial intelligence.

Supporting effective and responsible leadership

Overall, the IoD describes the Code as a tool to help directors navigate increasingly complex governance challenges and strengthen trust among shareholders, employees, customers and wider stakeholders. Making use of such resources can provide valuable support to directors in fulfilling the role effectively and protecting both the company and its people.

If you would like advice in relation to the duties you legally owe to the company, then please contact a member of the Kuits corporate team on 0161 832 3434, or at [email protected].