What Rights and Duties Does a Company Director Have in the UK?

As a company director, you should be aware of your directors’ duties and rights. The Companies Act 2006 outlines the bulk of general duties that a director will have towards shareholders. A company’s constitution can supplement the Companies Act and delegate more duties and rights per its own terms. 

Understanding the extent of company directors’ powers is important for avoiding legal liability, as well as for meeting your responsibilities as a company owner. This article will explain some of the general rights and duties that company directors possess.

What is a Company Director?

Company directors can form an important part of your business and are separate from the founders and shareholders of your business. They are responsible for managing day to day operations. Further, they also have general fiduciary duties to act in the best interest of shareholders. 

A business can have different types of company directors. Some examples include:

• executive directors – who work in a role similar to a CEO;
• non-executive directors – who participate in board meetings, but might directly run operations;
• de facto directors – who the company’s constitution will not name as a director, but will work in a director’s capacity; and
• shadow directors – who have a large influence over the board of the company, but are not ‘official’ directors as registered with the Companies House.

Importantly, a person can act as a director even if your company’s constitution does not name them as one. This is provided that they are performing the function of a director. For example, a de facto director may be responsible for an important part of the company. This will mean that they are treated as if they have the rights and duties of a director.

What are the Rights of a Director?

A company director has a number of general rights in relation to their company by virtue of being a director. These include the right to: 

• inspect company financial records, business books, and annual accounts;
• delegate powers to any members as they see fit, as long as it adheres to the company’s constitutional terms;
• take part in the company’s board meetings; and
• remain as a company director until they are removed – removal typically happens through a majority vote by the other directors. 

Often, a company’s constitution will supplement your director’s general rights with additional powers. As a result, it is important to review your company’s constitution frequently. By doing so, you can ensure that formal director rights accurately reflect the power you wish to delegate to them. You can also initiate amendments or reviews of your company’s constitution in a number of ways. These include special resolutions at board meetings.

What are Directors’ Duties

Director rights also come with a number of duties and responsibilities. As mentioned, these are usually outlined in the company constitution. However, the Companies Act outlines seven general duties (sometimes referred to as the statutory duties) for company directors. These include a duty to:

• act within powers – meaning that the director has to work within the company’s constitution;
• exercise independent judgement – meaning that the director must make decisions for themselves (though they can seek independent legal and commercial advice);
• promote the company’s success – this usually requires the director to prioritise increasing value in the company;
• exercise reasonable care and diligence – meaning that they cannot fall below the standard of a diligent person doing the same job;
• avoid conflicts of interest – meaning that the director cannot put themselves in a position where they have to choose between company interest and personal interest; 
• not accept benefits from a third party – for example, you cannot accept a personal gift from a third party in exchange for a contract with them; and
• declare if you have a personal interest in a proposed transaction with your company – this works to let other members know of your dual interest in a transaction.

As mentioned, a company’s constitution will typically outline further rights and duties. Therefore, you should ensure you know the exact limit of a director’s powers as outlined in your internal governing documents.

Key Takeaways

As a company with directors, it is important that you know the limit of a director’s rights and powers, as well as their responsibilities. Director rights include the right to sit on board meetings, investigate company accounts, delegate powers, and remain as a director until removal. At the same time, a director will have a number of general statutory duties, including the duty to act within powers, avoid conflicts of interest, promote the company’s success, and act in the best interest of shareholders. 

If you need help understanding your corporate governance duties and responsibilities, our experienced corporate lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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