Insights · Governance

A director's seven duties
under the Companies Act 2006.

Take the job of company director and you take on seven legal duties, set out in sections 171 to 177 of the Companies Act 2006. Here is what each one means in plain English — and the everyday decisions where it actually bites.

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Being a director is not a title — it is a legal office, with duties that apply from the day you are appointed, whatever the size of the company.

Before 2006, a director's core obligations lived in scattered case law. The Companies Act 2006 gathered them into seven general duties in sections 171 to 177, so any director can read them in one place. They apply to executive and non-executive directors alike — and often to "shadow" directors (people the board is accustomed to obey) and "de facto" directors (people who act as a director without being formally appointed) too.

The duties are owed to the company itself. In normal times that means acting for the benefit of the shareholders as a whole; when a company is insolvent or near it, the focus shifts to creditors. Below we take each duty in turn.

The seven general duties

Sections 171–177 of the Companies Act 2006, in order.

Act within your powers (s.171). Use your powers only for the purposes for which they were given, and stay inside the company's constitution — its articles, shareholder resolutions and agreements. Issuing shares to block a takeover, for example, may be within the letter of a power but outside its proper purpose.
Promote the success of the company (s.172). Act in the way you genuinely believe, in good faith, is most likely to promote the success of the company for the members as a whole — while having regard to long-term consequences, employees, suppliers and customers, the community and environment, the company's reputation, and fairness between members. This is the duty that shapes most board decisions.
Exercise independent judgement (s.173). Make your own decisions. You can take advice and rely on others' expertise, but you cannot simply do as a dominant shareholder, parent company or fellow director tells you without applying your own mind to it.
Exercise reasonable care, skill and diligence (s.174). Meet the standard of a reasonably diligent person with both the general knowledge expected of someone in your role and your own actual knowledge and experience. A qualified accountant on the board is held to a higher standard on the numbers than a lay director.
Avoid conflicts of interest (s.175). Steer clear of situations where your interests conflict, or may conflict, with the company's — especially the exploitation of property, information or opportunity. A conflict can be authorised in advance by the unconflicted directors if the constitution permits, but it must be handled openly and minuted.
Don't accept benefits from third parties (s.176). Do not accept a benefit from a third party that is given because of your position, or because of something you do or don't do as a director, where it could reasonably be seen as giving rise to a conflict.
Declare an interest in a proposed transaction (s.177). If you are interested, directly or indirectly, in a transaction the company is entering into, declare the nature and extent of that interest to the other directors before the company commits.

Where the duties actually bite

The duties feel abstract until a real decision brings them to life. These are the moments where directors most often need to stop and think:

Taking on finance. Borrowing, granting security, or giving a guarantee is a s.172 and s.174 decision: is it in the company's interests, and have you understood the terms? If the company is under strain, the creditor duty (below) is also engaged.
Related-party deals. Renting premises from a director, buying from a company a director owns, or paying a connected consultant triggers ss.175 and 177 — declare, and where needed obtain proper authorisation before proceeding.
Dividends and drawings. A dividend can only be paid out of distributable profits. Paying one when the company cannot afford it, or taking money out as a director's loan the company relies on, can breach s.172 and s.174 and be clawed back if the company later fails.
Trading through difficulty. The single sharpest area. Once insolvency is on the horizon, the duty pivots to creditors, and continuing to trade or incur credit without a reasonable prospect of recovery risks personal liability for wrongful trading.

The creditor duty. The Supreme Court confirmed in BTI 2014 LLC v Sequana (2022) that when a company is insolvent or bordering on insolvency, directors must have regard to creditors' interests as a whole. This is the point at which keeping clear board minutes — showing what you knew, when, and why you decided as you did — matters most.

Habits that keep a board on the right side

Minute the "why", not just the "what". Record the factors the board weighed — especially the s.172 factors on a big call. Good contemporaneous minutes are the best evidence a decision was properly made.
Declare early and in writing. If you have any interest in a matter, put it on the record before the discussion, and step out of the vote where appropriate.
Keep the numbers current. The s.174 standard assumes you know the company's financial position. Management accounts and a live cash-flow forecast are not optional once a company has scale.
Take advice at the pinch points. Finance, insolvency risk, and related-party deals are the moments to get professional advice — and to note that you took it.

Directors' duties: common questions

Where do a UK director's legal duties come from?

The seven general duties of a company director are codified in sections 171 to 177 of the Companies Act 2006. They apply to every director of a UK company — executive, non-executive, and often "shadow" and "de facto" directors too — regardless of the company's size. Before 2006 these duties existed in case law; the Act restated them in statute so directors could read them in one place. Other duties (health and safety, data protection, tax, sector regulation) sit on top, but the general duties are the backbone.

What does the section 172 "duty to promote the success of the company" mean in practice?

Section 172 requires a director to act in the way they consider, in good faith, most likely to promote the success of the company for the benefit of its members as a whole. In doing so they must have regard to a list of factors: the likely long-term consequences of decisions, the interests of employees, relationships with suppliers and customers, the impact on the community and environment, the company's reputation for high standards, and the need to act fairly between members. It is a subjective test of the director's honest judgement — but a decision with no rational basis, or one taken without considering the factors, is hard to defend.

When do directors have to think about creditors rather than shareholders?

Ordinarily the section 172 duty is owed for the benefit of members (shareholders). But when a company is insolvent, or bordering on insolvency, the duty shifts: directors must have regard to the interests of creditors as a whole. The Supreme Court confirmed this "creditor duty" in BTI 2014 LLC v Sequana (2022). In the zone of insolvency, continuing to trade, paying some creditors ahead of others, or taking on new liabilities can expose directors to wrongful-trading and misfeasance claims — so this is the point at which a director most needs to take advice and keep clear records of decisions.

What is the difference between duties owed to the company and personal liability?

The general duties are owed to the company itself, not to individual shareholders or creditors, so it is usually the company (or a liquidator on its behalf) that enforces them. But a breach can still land on a director personally: the court can require a director to compensate the company, account for a secret profit, or return misapplied assets. Separate provisions — wrongful trading (s.214 Insolvency Act 1986), fraudulent trading, and director disqualification — can add personal liability and a ban of up to 15 years. Personal guarantees, given contractually, are a different mechanism again.

Can a company change or relax a director's duties?

Only within limits. A company cannot simply contract out of the statutory duties, and any provision that tries to exempt a director from liability for negligence, default, breach of duty or breach of trust is generally void. What a company can do is authorise a conflict of interest in advance (under s.175, if the constitution allows), ratify certain past conduct by ordinary resolution of disinterested members, and buy directors' and officers' (D&O) insurance. Good practice is to document any authorisation clearly in the board minutes at the time.

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A director's seven dutiesunder the Companies Act 2006.