UK Directors’ Duties and Risks

Anton Nikolaiev

11.06.2026

Key takeaways

Directors’ duties under the Companies Act 2006 impose legal obligations to act within powers, promote success and avoid conflicts of interest.
Understanding and applying these duties reduces personal liability, informs disclosure obligations and signals when professional advice is required.
Directors must exercise independent judgement and reasonable care, skill and diligence, applying any specialist knowledge and keeping informed.
Breaches, undeclared conflicts of interest, or trading near insolvency expose directors to compensation claims, disqualification, and personal liability.

Introduction

In the United Kingdom, the main duties of directors are set out in the Companies Act 2006. These duties are legal obligations, not simply standards of good practice. A director who breaches them may face claims, personal liability, disqualification or other legal consequences.
This article explains the key duties of directors, why they matter, and the common risks that may arise when directors do not clearly understand their legal position.

What are directors’ duties?

Directors’ duties are legal obligations owed by directors to the company. They apply when directors make decisions, exercise company powers, enter into transactions, address conflicts, or manage the company’s affairs.

The general duties under the Companies Act 2006 include the duty to:

act within powers;
promote the success of the company;
exercise independent judgement;
exercise reasonable care, skill and diligence;
avoid conflicts of interest;
not accept benefits from third parties;
declare interests in proposed transactions or arrangements with the company.

These duties usually apply to formally appointed directors. In some circumstances, they may also apply to a person who acts as a director in practice, even if they have not been formally appointed.

Duty to act within powers

A director must act in accordance with the company’s constitution. This includes the company’s articles of association and any limits placed on the director’s authority.

Directors must use their powers only for the purposes for which those powers were given. For example, a power to approve a transaction, issue shares or manage company assets should not be used for an improper purpose or for personal advantage.

Duty to promote the success of the company

Directors must act in good faith in a way they consider most likely to promote the success of the company for the benefit of its members as a whole.

When making decisions, directors may need to consider:

The likely long-term consequences of the decision.
The interests of employees.
Relationships with customers, suppliers and business partners.
The company’s reputation.
The impact of the company’s activities on the community and the environment.
The need to act fairly between shareholders.

Where a company is in financial difficulty, directors must also consider the interests of creditors. This becomes especially important if the company is insolvent, close to insolvency, or likely to enter insolvent liquidation or administration.

Duty to exercise independent judgement

Directors must make their own decisions. They may consider advice from lawyers, accountants, consultants, shareholders or other directors, but they should not simply follow instructions without independent thought.

This duty is particularly relevant where a director has been appointed by a shareholder, an investor, or a parent company. The director may take that party’s views into account, but their duty remains owed to the company.

Duty to exercise reasonable care, skill and diligence

Directors must carry out their role with reasonable care, skill and diligence.

The required standard includes:

the care, skill and diligence expected from a reasonably diligent person carrying out the same role;
any additional knowledge, skill or experience that the individual director actually has.

A director with professional or specialist knowledge may therefore be expected to apply that knowledge when making relevant decisions. This duty requires directors to stay informed, review important information and ask questions where necessary.

Duty to avoid conflicts of interest

Directors must avoid situations in which their personal interests or duties to another person or organisation may conflict with the interests of the company.

A conflict may arise if a director has a personal interest in a company transaction, is connected to a supplier or competitor, or receives a business opportunity because of their position. Conflicts should be disclosed and managed in accordance with the company’s constitution and applicable law.

Duty not to accept benefits from third parties

Directors must not accept benefits from third parties because of their position as a director or because of anything they do, or do not do, in that role.

This may include commissions, personal payments, gifts, hospitality or other benefits that could influence decision-making. The issue is not limited to obvious bribery. A benefit may create a concern if it could affect, or appear to affect, the director’s judgement.

Duty to declare interests in company transactions

If a director has an interest in a proposed transaction or arrangement with the company, they must declare that interest to the other directors.

This duty may apply where the company is entering into a contract, making a payment, granting a loan, buying or selling assets, or dealing with a business connected to the director. The declaration should be made before the company enters into the transaction and should be properly recorded.

Why directors’ duties matter

Directors have the authority to act on behalf of the company. That authority must be used lawfully, for proper purposes and in the company’s interests.

A clear understanding of directors’ duties helps directors to:

make informed decisions;
reduce the risk of disputes;
avoid conflicts between personal and company interests;
understand when disclosure or approval is required;
identify when professional advice may be needed;
reduce the risk of personal liability.

These duties are particularly important in owner-managed companies, where the same person may be both shareholder and director. These roles are legally different and should not be treated as interchangeable.

Common risks for directors

Directors may face risk if they do not understand the scope of their duties or if decisions are made informally.

Common risks include:

acting outside the company’s constitution;
confusing personal interests with company interests;
failing to declare a conflict of interest;
relying on others without making an independent decision;
not keeping proper records of important decisions;
acting as a director in practice without formal appointment;
continuing to trade when the company is in serious financial difficulty.

A person may become a de facto director if they act as a director in practice. In that situation, they may owe directors’ duties even without a formal appointment.

Consequences of breaching directors’ duties

A breach of directors’ duties may lead to serious consequences. Depending on the circumstances, these may include:

claims for compensation;
repayment of money or return of company property;
disqualification from acting as a director;
personal liability in an insolvency situation;
criminal penalties in the most serious cases.

The outcome will depend on the facts, the type of breach, the loss incurred, and the company’s financial position.

Conclusion

Directors’ duties are a central part of UK company law. They require directors to act within their powers, promote the success of the company, make independent decisions, exercise reasonable care, avoid conflicts of interest, and disclose relevant interests.

Understanding these duties helps directors manage the company lawfully, reduce personal risk and make decisions in a structured and responsible way.