What is a company director? Duties, personal liability and types of director (UK)

What is a company director, what duties do they owe, and what kinds of director exist in the UK? The short answer is that a director is the person who acts on behalf of a limited company, because the company cannot act for itself. With that role come legal duties, usually owed to the company, and a director who breaches them can be held personally liable.

What is a company director?

Limited companies in the UK can enter into contracts, hire and fire people and take on loans. But a company, in itself, does not have a brain. It cannot decide anything or sign anything on its own.

That is where the director comes in. A company director acts on behalf of the limited company, taking actions as if they were the company. When the company signs a contract or takes on a loan, it is the director who makes that decision and carries it out in the company's name.

A director is not the same thing as a shareholder, although in small companies the same person is often both. The shareholder owns the company; the director runs it. The distinction is covered in more detail in shareholder vs director.

Directors' duties explained

UK company directors have legal duties, and these are usually owed towards the company itself rather than to anyone else. Some of the main duties are:

• Promote the success of the company. A director must always act to promote the success of the company for the benefit of its shareholders.
• Exercise independent judgment. A director must make up their own mind when taking decisions, rather than simply doing what someone else tells them.
• Exercise reasonable care, skill and diligence. A director is expected to bring a reasonable level of competence and attention to the role.
• Avoid conflicts of interest. A director must avoid situations where their personal interests conflict with those of the company.
• Not accept benefits from third parties. A director must not accept personal benefits from outsiders in connection with their position.

What happens if a director breaches their duties?

If you are a company director in the UK and you breach one of the duties you owe to your company, the consequences are personal. The shareholders of the company might sue you, and you may be held personally liable. The protection that a limited company normally gives its directors and shareholders does not extend to a director who has broken their own duties to the company.

Executive vs non-executive directors

There are two main kinds of company director:

• Executive director. This is the person involved in the day-to-day running of the business. In most small companies, the owner-manager is an executive director.
• Non-executive director. A non-executive director is usually only called upon when important decisions need to be made. They are not involved in the daily operation of the business, but they take part in the significant decisions of the board.

Both kinds of director owe the same legal duties to the company.

Next steps

If you are about to become a director, or already are one, make sure you understand the duties you owe to the company, because a breach can leave you personally exposed. Keep the company's interests ahead of your own, take decisions on your own judgment and record them properly. If you are unsure whether a particular situation puts you in conflict with the company, speak to a corporate solicitor before you act.