The Companies Act 2006 sets out seven general duties that every company director owes, in sections 171 to 177. They are owed to the company itself, not to individual shareholders, employees or creditors, and they replaced the older common law and equitable rules while still being interpreted in the same way.

Who has to comply with the general duties?

Section 170(1) says the general duties in sections 171 to 177 are owed by a director of a company to the company. The Act takes a wide view of who is a director. Section 250 provides that “director” includes any person occupying the position of director, by whatever name called, so someone who acts as a director without ever being formally appointed can still be caught.

Shadow directors are also covered. Section 251 defines a shadow director as a person in accordance with whose directions or instructions the directors are accustomed to act, and section 170(5) applies the general duties to a shadow director where and to the extent that they are capable of applying. Under section 251(2), giving advice in a professional capacity does not on its own make someone a shadow director.

Under section 170(2), a former director remains bound by the conflicts duty in section 175 for property, information or opportunities they learned of while a director, and by the section 176 duty on third party benefits for things done before they left.

What are the seven general duties?

Section Duty What it means in practice
171 Act within powers Follow the company’s constitution and use powers only for the purposes for which they were given.
172 Promote the success of the company Act in the way you consider, in good faith, most likely to promote the company’s success for the benefit of its members as a whole.
173 Exercise independent judgment Make your own decisions, unless acting under an agreement duly entered into by the company or in a way the constitution authorises.
174 Exercise reasonable care, skill and diligence Meet an objective minimum standard, raised further by any particular knowledge and experience you have.
175 Avoid conflicts of interest Avoid situations where your interests conflict, or may conflict, with the company’s, unless authorised.
176 Not accept benefits from third parties Do not accept benefits given because you are a director or because of what you do as a director.
177 Declare interest in a proposed transaction Tell the other directors the nature and extent of your interest before the company enters into the deal.

A typical question under section 171(b) is whether a power was used for its proper purpose. For example, the power to allot shares exists to raise capital and run the company, so using it mainly to change who controls the company is the kind of decision that tends to be challenged. Our guide on allotting new shares explains the separate statutory steps for issuing shares.

How does the duty to promote the success of the company work?

Section 172(1) is a subjective test of good faith: the director must act in the way they consider would be 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, amongst other things, to the likely long term consequences of a decision, the interests of employees, relationships with suppliers and customers, the impact on the community and the environment, the company’s reputation for high standards of business conduct, and the need to act fairly between members.

Section 172(3) adds an important limit: the duty has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors. Separately, section 214 of the Insolvency Act 1986 allows a liquidator to ask the court to make a director contribute to the company’s assets if the director knew or ought to have concluded that there was no reasonable prospect of avoiding insolvent liquidation or insolvent administration, and did not then take every step to minimise the potential loss to creditors.

Larger companies must also report on this duty. Section 414CZA requires a strategic report to include a “section 172(1) statement” describing how the directors had regard to those factors, but this does not apply to a company that qualifies as medium sized for the year.

What standard of care does section 174 expect?

Section 174(2) sets a two part test. The director must show the care, skill and diligence of a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of someone carrying out that director’s functions, and also with the general knowledge, skill and experience that the director actually has. The second limb raises the bar for directors with relevant expertise, so a director who is a qualified accountant is likely to be judged more strictly on the company’s financial reporting than a colleague without that background.

Delegation does not remove responsibility. GOV.UK guidance for directors says that you can hire other people, such as an accountant, to manage some things day to day, but you are still legally responsible for the company’s records, accounts and performance. That links directly to a director’s tax responsibilities.

How should conflicts and personal interests be handled?

Three provisions work together:

  • Section 175 covers situational conflicts, such as a director exploiting an opportunity the company might want. It does not apply to transactions with the company itself. In a private company, the directors can authorise the conflict unless the constitution prevents it, and the authorisation only counts if the quorum and the vote are achieved without the interested directors (section 175(5) and (6)).
  • Section 177 requires a director with a direct or indirect interest in a proposed transaction with the company to declare the nature and extent of it to the other directors before the company enters into it. No declaration is needed if the interest cannot reasonably be regarded as likely to give rise to a conflict, if the other directors already know or ought reasonably to know, or if it concerns the director’s service contract being considered by the board or a committee (section 177(6)).
  • Section 182 requires a similar declaration for an interest in a transaction the company has already entered into, as soon as reasonably practicable, unless it was already declared under section 177. Failing to comply with section 182 is a criminal offence under section 183.

Some transactions need shareholder approval as well. Members must approve a director’s service contract with a guaranteed term that is or may be longer than two years (section 188), substantial property transactions between the company and a director or connected person (section 190), and loans to directors (section 197). An asset is “substantial” under section 191 if its value exceeds 10% of the company’s asset value and is more than £5,000, or exceeds £100,000. Loans and overdrawn balances are covered in our guide to the director’s loan account.

What happens if a director breaches a duty?

Section 178 says the consequences of breach are the same as would apply under the corresponding common law rule or equitable principle, and that all the duties except section 174 are enforceable in the same way as any other fiduciary duty.

Because the duties are owed to the company, the company is normally the claimant. A shareholder can bring a derivative claim on the company’s behalf under section 260, but only for a cause of action arising from negligence, default, breach of duty or breach of trust by a director. The members can ratify a breach by resolution under section 239, but the votes of the director concerned and members connected with them are disregarded, or they are not eligible members on a written resolution.

Two further rules are worth knowing. Section 232 makes void any provision that tries to exempt a director from liability for negligence, default, breach of duty or breach of trust, although section 233 allows the company to buy insurance for its directors against that liability. And section 1157 lets the court relieve a director wholly or partly from liability if they acted honestly and reasonably and ought fairly to be excused.

What does this look like in a small company?

Illustration only. Priya and Tom are the two directors of a company whose most recent statutory accounts show net assets of £80,000. Priya owns a van she wants to sell to the company for £12,000. Because she is interested in a proposed transaction, she must declare the nature and extent of her interest to Tom before the company buys the van (section 177). The van is also a substantial non cash asset: £12,000 exceeds 10% of £80,000 (£8,000) and is more than £5,000, so the purchase needs approval by a resolution of the members, or must be conditional on it (section 190).

What are the common mistakes?

  • Assuming that because the director is also the only shareholder, the duties do not apply. The duties are owed to the company as a separate person, and creditors’ interests come into play when solvency is in doubt.
  • Paying dividends without checking reserves. Section 830 allows distributions only out of profits available for the purpose; see how to pay dividends legally.
  • Declaring an interest informally and not minuting it, which makes it hard to prove compliance later.
  • Forgetting that a buyback, loan or asset purchase involving a director can need separate member approval, as with a share buyback.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

Related Accountapedia entries

Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.