What Every Founder and Director Should Know: The Duties That Protect Your Company
Running a company isn’t just about making profits.
It’s also about trust — between founders, investors, partners, and the company itself.
That’s why, in most countries, company law gives directors a set of legal duties — rules about how they must behave when managing a business.
These duties exist to protect both the company and its shareholders from misuse of power or unfair advantage.
Let’s break them down in simple language.
1. What Are Directors’ Duties?
A director is anyone who helps run the company — officially or unofficially.
Even if someone isn’t listed on paper but acts like a director (making key decisions or giving instructions), the law might still treat them as one — they’re called a de facto or shadow director.
Across the world — from the UK to Singapore, Canada to India — the main principles are similar.
Directors must:
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Act honestly and in good faith for the benefit of the company.
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Use their powers for proper purposes, not personal gain.
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Avoid conflicts of interest.
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Not take company opportunities for themselves.
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Be careful and diligent when making decisions.
Let’s look at what these mean in practice.
2. Acting in the Company’s Best Interests
When you manage a company, you’re not working for yourself — you’re working for the company as a separate legal person.
This means you must make decisions that are good for the company, not just for certain shareholders or friends.
Example:
Imagine you’re the director of a start-up that builds mobile apps.
You also own a second company that sells digital ads.
If you decide to buy ads from your own company at a high price — just to make money on the side — that’s a conflict of interest.
You’re putting your own benefit before the company’s.
Tip for new founders:
Always ask: “Would I make the same decision if this money wasn’t mine?”
3. Using Powers for the Right Purpose
Every director has powers — to hire people, issue shares, approve deals, etc.
But those powers must be used only for the purposes the company gave them for.
Example:
Let’s say your company lets directors issue new shares “to raise funds.”
If you issue shares only to your cousin to keep control of the company away from investors, that’s an abuse of power, even if it’s legally possible.
Intent matters as much as the action.
4. Avoiding Conflicts of Interest
One of the most serious rules for directors is this:
You cannot put yourself in a situation where your personal interest conflicts with your duty to the company.
This includes things like:
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Taking contracts or deals the company could have made.
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Competing with your own company.
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Using company information for your personal advantage.
It doesn’t matter if the company couldn’t have taken that opportunity — what matters is how you learned about it.
Real-World Example (simplified)
A director of a consulting firm learns about a property that might soon be sold cheaply.
He buys it himself, arguing that “the company doesn’t buy property anyway.”
Still, he’s liable — because he found out about that deal while acting as a director, and used that insider information for himself.
Lesson: It’s not about what the company does now, but about how you got the opportunity.
5. Competing Companies and Double Roles
Sometimes a director works for more than one business — or even starts a competing one.
This is where things get complicated.
Older laws (especially from the 19th century) used to allow this, as long as the director didn’t directly harm the first company.
But modern courts — especially in the UK and EU — take a much stricter view.
Today, holding two directorships in competing companies is usually seen as a serious conflict of duty.
Example:
If you’re a director of “GreenSolar Ltd” and also sit on the board of “BrightEnergy Co”, both selling solar panels — your loyalty is divided.
Even if you never share secrets, the law sees it as a potential conflict because you can’t fully serve both masters.
6. Planning to Compete (After You Leave)
Here’s a question many founders ask:
“Can I start my own company while still working as a director for another one?”
Yes — but with limits.
A director can plan their next business, as long as:
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They only take small, preparatory steps (like doing research or talking to lawyers).
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They don’t use company resources or contacts for that purpose.
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And they either inform the board or resign before taking serious action.
If you secretly start building a competing business while still a director, it’s almost always a breach of duty.
7. After Resignation: Are You Still Bound?
Leaving the company doesn’t mean you can do whatever you want.
Some duties continue even after you resign — especially those about confidential information and business opportunities you learned about as a director.
Example:
A director leaves a company and then, two months later, takes a big contract from a client he first met while on the board.
Even if he’s no longer officially a director, he can still be held responsible if that opportunity arose while he was still in office.
However, there are two exceptions courts often accept:
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The director didn’t resign to take the opportunity, and
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The company wasn’t actively pursuing that opportunity anymore.
In short:
If the business chance was still “alive” for the company when you left — it’s off-limits.
8. Using Knowledge After Leaving
After you leave, you can use your general skills and experience, but not trade secrets.
Think of it like this:
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✅ You can use what’s in your brain (skills, lessons learned).
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❌ You can’t use what’s in the company’s vault (confidential info, client lists, secret formulas).
Example:
If you were a director in a skincare company, you can start your own brand using your marketing experience — but you can’t copy the old company’s secret ingredient or client database.
9. Why These Rules Matter for Every Businessperson
These rules aren’t just legal technicalities — they’re the foundation of business ethics.
Whether you’re in Europe, the US, or Asia, the same logic applies:
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Companies are built on trust.
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Investors give you money because they believe you’ll act honestly and transparently.
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Partners work with you because they expect fairness and loyalty.
Violating these duties doesn’t just cause lawsuits — it destroys your reputation, which in business is worth more than capital.
When you start a business, you might think your biggest challenge is competition or finance.
But in truth, your biggest challenge is integrity.
The law doesn’t just punish dishonesty — it protects the idea of fairness that keeps capitalism alive.
Even if no one is watching, your duties are.
Q1: What is the main duty of a company director?
Act honestly and in good faith for the benefit of the company.
Focus only on personal profits and benefits while managing the company.
Delegate all decisions to shareholders without using their managerial powers.
Q2: Which action can create a conflict of interest for a director?
Buying property personally that the company could have purchased, using knowledge gained as director.
Using personal skills learned at previous jobs to run a new company.
Taking a short vacation without board approval.
Q3: After resigning, what duty of a director still applies?
Not using confidential information or business opportunities learned while in office.
Taking over the company’s management as if they never resigned.
Selling personal shares immediately without any shareholder approval.
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