Think being a company director is just about making big decisions? In reality, the role carries weighty legal duties that go far beyond the boardroom. Under English law, directors are personally responsible for ensuring their company complies with everything from the Companies Act 2006 to health and safety, tax, and employment regulations. This post breaks down the key legal duties of a director and explains how getting them wrong could expose directors to serious legal risk.
What are the duties of a company director under English law?
Under the Companies Act 2006, every company director must follow seven key legal duties. These statutory duties apply to all directors, no matter the size or type of company. They include the obligation to:
- act within the company’s constitution and powers;
- promote the success of the company for the benefit of its members;
- use independent judgement;
- exercise reasonable care, skill and diligence;
- avoid conflicts of interest;
- not accept benefits from third parties; and
- declare any interest in proposed transactions or arrangements with the company.
These duties apply to all types of directors; executive, non-executive, de facto and shadow. They are owed to the company itself, not to individual shareholders or employees, and guide both day-to-day decisions and long-term strategy.
However, a director’s legal responsibilities under English law go well beyond the Companies Act. Directors must also ensure the company follows other legal frameworks that apply to its operations.
What’s a defacto or shadow director?
A de facto director is a person who acts as a director in practice, even if they
have not been formally appointed. If someone makes decisions and is treated as part of
the board, the law may treat them as a director regardless of their official title.
A shadow director is a person who does not formally sit on the board but
whose instructions or wishes are followed by the majority of the directors. The law treats
them as a director where they exert significant influence or control behind the scenes
Other Key Legal Responsibilities of Directors
Employment and Equality Law
Directors must ensure the company complies with employment law. This includes:
- fair and lawful recruitment and dismissal procedures;
- paying at least the national minimum wage and giving staff proper holiday entitlements;
- avoiding discrimination based on race, gender, disability, age, or religion, as set out in the Equality Act 2010;
- meeting data protection rules for employee records; and
- following health and safety duties under the Health and Safety at Work Act 1974.
Failure to meet these responsibilities can lead to employment tribunal claims. In some cases, directors may face personal legal liability, for example, under whistleblowing or discrimination laws.
Health and Safety
All directors have duties under health and safety law. These are especially important in higher-risk sectors. The Health and Safety Executive (HSE) expects directors to:
- take responsibility for health and safety governance;
- make sure risk assessments are carried out and followed;
- promote a positive safety culture within the company; and
- meet their duties under the Corporate Manslaughter and Corporate Homicide Act 2007 in serious cases.
Failing to meet these duties can result in criminal liability for the company and, in some cases, for individual directors.
Environmental Obligations
Directors in some industries must make sure their company follows environmental regulations. These may cover areas like waste disposal, emissions, or the use of chemicals. Directors should also consider the impact of the comapny’s operations on the community and environment. Regulators such as the Environment Agency can:
- issue civil penalties;
- take legal action against companies or individual directors; and
- demand corrective steps under environmental permits or planning laws.
Failing to comply can damage the company’s reputation and lead to fines, or, in serious cases, director disqualification or prosecution.
Tax Compliance
Even if tax matters are handled by finance teams, directors are still legally responsible. They must:
- make sure all tax filings are accurate (e.g. corporation tax, VAT, PAYE);
- prevent tax evasion or the facilitation of evasion (as required under the Criminal Finances Act 2017); and
- meet company law rules on record-keeping and statutory reporting.
If directors fail to meet these duties- deliberately or by neglect- they may face personal liability or even criminal prosecution.
Insolvency and financial distress
When a company is insolvent, or likely to become insolvent, a director’s duties change. At that point, they must:
- put the interests of creditors before those of shareholders;
- avoid wrongful trading (that is, continuing to trade with no real chance of avoiding insolvency);
- avoid fraudulent trading; and
- cooperate fully with any appointed insolvency practitioners.
Breaching these duties can lead to personal liability for losses, disqualification from acting as a director, or even criminal charges.
Regulatory and sector specific duties
In regulated industries such as financial services, healthcare or education, directors may have to follow extra legal requirements. These can include statutory codes, conduct rules or licensing obligations, depending on the sector. Regulators may include:
- the Financial Conduct Authority (FCA),
- the Care Quality Commission (CQC), or
- Ofcom or Ofsted.
Directors must make sure the company meets any sector-specific standards. Failure to do so can lead to enforcement action and fines. In some cases, failure may damage the company’s reputation for high standards of business conduct.
Can I be personally liable if I breach my duties as a director?
Yes. Directors who fail to meet their legal and regulatory duties may face:
- civil claims for damages or repayment;
- disqualification under the Company Directors Disqualification Act 1986;
- criminal charges for breaches of health and safety, tax, financial or environmental law; and
- reputational damage or loss of professional standing.
It’s not enough to delegate these responsibilities. Directors are expected to take full ownership of corporate governance and put effective oversight in place.
Summary
The Companies Act 2006 sets out the core duties of a director, but the role involves much more. Directors in England also have legal responsibilities under:
- employment and equality law,
- tax and accounting rules,
- health and safety regulations,
- environmental protection laws,
- insolvency law, and
- any relevant sector-specific frameworks.
Understanding these wider obligations is key to doing the job properly, promoting the success of the company and avoiding personal legal risk.
