What are directors' duties under the Companies Act 2006?
By SuLe · Updated 16 June 2026
The Companies Act 2006 codifies seven general duties for directors in sections 171 to 177: act within your powers, promote the success of the company, exercise independent judgment, exercise reasonable care, skill and diligence, avoid conflicts of interest, refuse benefits from third parties, and declare interests in proposed transactions. They apply from your first day as a director — including founders of one-person startups.
Key facts
- The seven general duties are codified in ss.171-177 of the Companies Act 2006.
- The central duty is s.172: promote the success of the company for the benefit of its members as a whole.
- The duties are owed to the company itself, not to shareholders individually.
- A director must be a natural person aged 16 or over — and the duties attach from appointment.
- When insolvency threatens, the focus of the duties shifts towards creditors' interests.
What are the seven duties?
They are listed in sections 171 to 177 of the Companies Act 2006, and every director owes all of them — executive or non-executive, paid or unpaid, sole founder or one of five.
| Section | Duty | What it means for a founder |
|---|---|---|
| s.171 | Act within powers | Follow the articles and use your powers for their proper purpose |
| s.172 | Promote the success of the company | Decide in good faith what benefits the members as a whole |
| s.173 | Exercise independent judgment | Do not rubber-stamp a co-founder's or investor's wishes |
| s.174 | Exercise reasonable care, skill and diligence | Engage with the numbers; you can delegate tasks, not responsibility |
| s.175 | Avoid conflicts of interest | Side ventures and competing interests need authorisation |
| s.176 | Do not accept benefits from third parties | No personal perks for steering company business |
| s.177 | Declare interests in proposed transactions | Tell the board before the company deals with you or yours |
The duties are cumulative — a related-party contract can engage s.172, s.175 and s.177 at once.
What does s.172 actually require day to day?
Section 172 asks you to act in the way you consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. It is a duty of honest judgment, not of always being right.
In making decisions you must have regard to wider factors — the likely long-term consequences, employees' interests, relationships with suppliers and customers, the community and environment, the company's reputation, and fairness between members.
The practical discipline is evidence. Short board minutes recording what you weighed turn "we thought about it" into something you can prove years later.
Who are the duties owed to — and who enforces them?
The company itself, not shareholders individually. Normally that means the board — or, later, a liquidator — decides whether to pursue a claim, though shareholders can in some circumstances bring a derivative claim in the company's name.
Breach carries real remedies: compensating the company's losses, handing over profits made from the breach, unwinding transactions, and potential director disqualification. Claims tend to surface when control changes — a new investor on the board, a falling-out between founders, or an insolvency practitioner reviewing past decisions.
Do the duties really bite in a founder-owned startup?
While you hold every share, breaches rarely get tested — but the duties still apply, and the record you create follows you. They grow teeth the moment other interests arrive: a minority co-founder, an investor with a board seat, employees holding options.
Conflicts are the startup classic. Contracting with your own consultancy, taking a company opportunity personally, or negotiating a round you personally benefit from all engage ss.175-177 and need declaring and, where required, authorising.
When the company is running out of money the duties shift again — creditors' interests move to the front, and the personal stakes rise sharply.
Worked example
Raj and Emma are directors of SwiftCrate Ltd, an e-commerce logistics startup. A packaging supplier owned by Raj's brother-in-law bids £24,000 a year for a contract; the nearest rival quotes £27,500. Raj declares his interest under s.177 before the board considers the bid, and Emma leads the decision.
They accept the cheaper bid and minute why: price, tested reliability and the long-term supplier relationship — a s.172 judgment weighing more than the £3,500 saving. When the supplier later offers Raj hospitality tickets as a thank-you, he declines them; a personal benefit from a company counterparty is exactly what s.176 targets. Total time cost: one declaration and a paragraph of minutes.
Where founders go wrong
"It's my company — I can do what I want"
— the duties are owed to the company from day one, and investors, minority shareholders and liquidators inherit the right to look back.Undeclared related-party deals
— contracting with your own consultancy or a relative's firm without a s.177 declaration is the most common self-inflicted breach.Rubber-stamping an investor's instructions
— s.173 requires independent judgment even when the person instructing you appointed you to the board.Missing the creditor shift
— trading on regardless when insolvency looms can create personal liability; take advice at the first sign of trouble.
Related questions
What happens if a director breaches these duties?
Remedies belong to the company: a director can be ordered to compensate losses, hand over profits made from the breach, or see the transaction unwound. Directors can also face disqualification. In practice claims surface when control changes — a new board, an aggrieved investor or an insolvency practitioner.
Do directors' duties change if the startup is running out of money?
Yes. As insolvency approaches, the s.172 focus shifts from members to creditors: decisions must increasingly protect the people the company owes money to. Keep minutes, take advice early — well before any formal process — and watch cash: this is where directors face real personal risk. [More: What are directors' duties when a startup is running out of money?]
Do the duties apply to a sole director-shareholder?
Yes, all seven, from the day of appointment. While you own every share the duties rarely get tested, but they are owed to the company — and once investors arrive or insolvency looms, past decisions can be re-examined by people with the standing to sue. [More: Can I be the sole director and shareholder of my startup?]
Who can be a director of a UK company?
A natural person aged 16 or over — a private company needs at least one, and the same person can also be the only shareholder. The duties attach automatically on appointment, and people who act as directors without being formally appointed can be treated as directors and owe them too.
Directors' duties are easy to honour and easy to evidence badly — most founder trouble comes not from bad faith but from missing declarations and empty minute books discovered years later. A SuLe solicitor can set up the simple governance habits that keep you protected. Book a free 15-minute consultation about your setup
Keep reading: What is a PSC and who counts as one? · Can I be the sole director and shareholder of my startup? · Should I use model articles or bespoke articles of association? · What legal documents does a UK startup actually need? · How do I remove a co-founder or director legally? · What are directors' duties when a startup is running out of money?
Primary sources: Companies Act 2006 · GOV.UK — Running a limited company
