The duty not to accept benefits from third parties

Section 176 of the Companies Act 2006 says a director must not accept a benefit from a third party that is given because they are a director, or because of something they do or do not do as a director. The duty is not breached if accepting the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest, so ordinary modest hospitality is usually fine, but commissions, introduction fees and generous gifts from suppliers or bidders are not. Unlike most conflicts, the board cannot authorise a breach; only the members can.

What does section 176 prohibit?

Section 176(1) prohibits a director from accepting a benefit from a third party conferred by reason of:

• their being a director; or
• their doing, or not doing, anything as a director.

The explanatory notes to the Act (paragraph 344) say the section codifies the rule prohibiting a director from exploiting the position for personal benefit, and that it prohibits the acceptance of benefits, including bribes. “Benefit” is not defined, so it covers cash, gifts, hospitality, travel, discounts, fees and commissions, and benefits passed to someone else at the director’s request where the director is the real recipient.

The link to the directorship is essential. A birthday present from a lifelong friend who happens to supply the company is not conferred by reason of the directorship. A case of wine from the same supplier the week before contract renewal may well be.

Who counts as a third party?

Section 176(2) defines a third party as anyone other than the company, an associated body corporate, or a person acting on behalf of the company or an associated body corporate. Under section 256, bodies corporate are associated if one is a subsidiary of the other or both are subsidiaries of the same body corporate. So salary, bonuses and benefits paid by the company or another group company fall outside section 176, as the explanatory notes (paragraph 346) confirm. Those are governed by the rules on approving directors’ pay instead.

Section 176(3) adds a further carve out: benefits received from a person by whom the director’s services are provided to the company are not treated as conferred by a third party. This covers, for example, a nominee director placed on the board by an investor or a firm that pays them. The salary from that employer is not a section 176 benefit, although the nominee still owes all the other duties to the company.

When is a gift or hospitality acceptable?

Section 176(4) says the duty is not infringed if acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest. Section 176(5) adds that a conflict of interest includes a conflict of interest and duty and a conflict of duties.

The test is objective: not whether the director feels influenced, but whether a reasonable observer would regard acceptance as likely to create a conflict. Useful questions are:

• Is the giver currently bidding for, negotiating or renewing business with the company?
• Is the director the person who decides or influences that business?
• Is the value modest and in line with normal business practice, or unusual?
• How frequent is it? Repeated hospitality from one supplier can create a pattern even where each event is small.
• Would the director be comfortable if the board saw it recorded?

Many companies adopt a gifts and hospitality policy with a value threshold and a register. That is not required by section 176, but it gives the board evidence that the line was drawn sensibly.

How does section 176 fit with the conflict rules?

Section 176 overlaps with the duty to avoid conflicts of interest in section 175. The explanatory notes (paragraph 344) say acceptance of a benefit giving rise to an actual or potential conflict falls within section 175 as well as section 176. The key differences are:

Point	Section 175 conflicts	Section 176 benefits
Can the board authorise?	Yes, under section 175(4)(b) and (5), in a private company unless the constitution prevents it	No. The explanatory notes (paragraph 344) say the duty is not subject to any provision for board authorisation
Can the members authorise?	Yes, preserved by section 180(4)(a)	Yes, preserved by section 180(4)(a), as paragraph 345 of the notes confirms
Articles dealing with conflicts	Acts in accordance with them do not infringe the duties (section 180(4)(b))	The same rule applies
Transactions with the company itself	Excluded by section 175(3) and handled by declaration	Not relevant, as the company is not a third party

Section 180(2) adds that where member approval is given under Chapter 4 or 4A of Part 10, or those chapters say approval is not needed, the director does not also have to comply with sections 175 and 176. For the board authorisation process, see our guide to directors’ conflicts of interest. Where the benefit comes with a contract the company is entering, the separate duty to declare the interest under section 177 may also apply; see declaring an interest in a proposed transaction.

Does the duty end when a director leaves?

Not completely. Section 170(2)(b) says a person who ceases to be a director remains subject to section 176 as regards things done or omitted before they ceased to be a director. A director who steers a contract to a supplier and then resigns to collect a “consultancy fee” from that supplier is still within the duty.

How does this work in practice?

Illustration only. Tom is the operations director of a logistics company. Three things happen in one month:

1. A haulier the company already uses invites Tom and other customers to its annual industry dinner. Nothing is under negotiation. This is unlikely to be regarded as likely to give rise to a conflict, and Tom notes it in the company’s hospitality register.
2. A warehouse provider bidding for a new contract offers Tom a weekend abroad for two. Tom chairs the tender panel. Accepting would plainly be likely to give rise to a conflict, so Tom declines and tells the board.
3. An insurer offers Tom personally a fee for introducing the company’s business. This is a benefit conferred because of what Tom does as a director. Unless the members approve it with full disclosure, Tom should refuse it, or arrange for any payment to go to the company instead.

Where does the Bribery Act come in?

Section 176 is a civil duty owed to the company. The Bribery Act 2010 is criminal law that applies to everyone. Section 2 of that Act makes it an offence for a person to request, agree to receive or accept a financial or other advantage intending that a relevant function should be performed improperly, or as a reward for improper performance. The Ministry of Justice quick start guide states that hospitality is not prohibited by the Act, and that a company could be liable if a very senior person such as a managing director commits a bribery offence.

So a benefit can breach section 176 without being a bribe, because section 176 only needs a likely conflict, not improper performance. But a director who accepts a bribe will almost always breach section 176 as well.

Is a gift from a third party taxable?

Possibly. Company directors are office holders, and HMRC’s Employment Status Manual (ESM2502) explains that an office holder is chargeable on the earnings of the office as employment income. Gifts and hospitality from clients and suppliers have their own exemptions and rules, set out in our guide to gifts and hospitality from third parties. The tax treatment and the company law position are separate questions: a gift can be tax free and still breach section 176.

What happens if a director breaches section 176?

Under section 178 the consequences are the same as under the equitable principle it replaced, and the duty is enforceable in the same way as any other fiduciary duty owed by a director. The company can sue, and members can bring a derivative claim under section 260. Members can ratify a breach under section 239, with the director’s own votes and those of connected members disregarded; see ratifying directors’ breaches. If the company later fails, Schedule 1 to the Company Directors Disqualification Act 1986 lists any breach of fiduciary duty as a factor in deciding whether a director is unfit.

What mistakes do directors make?

• Assuming the board can sign off a personal commission. It cannot; only the members can authorise.
• Treating a benefit routed to a spouse or a personal company as outside the duty.
• Accepting hospitality during a live tender because “everyone does it”.
• Forgetting that the duty survives resignation for things done while in office.
• Confusing the tax exemption for small gifts with permission under company law.

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Related Accountapedia entries

• Directors’ duties under the Companies Act 2006
• Nominee directors and their duties
• The duty to exercise independent judgment (section 173)
• Substantial property transactions with directors
• Declaring an interest in an existing transaction

Sources

• legislation.gov.uk: Act 2006 c. 46, section 176
• legislation.gov.uk: Act 2006 c. 46
• legislation.gov.uk: Act 2006 c. 46, section 256
• legislation.gov.uk: Act 2006 c. 46, section 175
• legislation.gov.uk: Act 2006 c. 46, section 180
• legislation.gov.uk: Act 2006 c. 46, section 170
• legislation.gov.uk: Act 2010 c. 23, section 2
• GOV.UK: Bribery act 2010 guidance
• GOV.UK: Manual page ESM2502
• legislation.gov.uk: Act 2006 c. 46, section 178

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.