Company Law and Directors' Duties: A 2026 Update for Solicitors

Company law practice has moved fast over the past eighteen months. The statutory duties in the Companies Act 2006 remain the bedrock of director conduct, but the framework around them has changed substantially through the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which is being implemented by Companies House in phases, and through a new corporate criminal offence that now sits alongside the existing duties. For solicitors advising boards, general counsel, and company secretaries, keeping clients compliant means understanding both strands together — the long-standing duties and the newer transparency and corporate crime regime layered on top of them.

The Statutory Directors' Duties: A Refresher for Advisers

Sections 171 to 177 of the Companies Act 2006 codified the equitable and common law duties that directors previously owed, and they remain the starting point for any advice on board conduct, liability, or governance disputes.

• Section 171 – Duty to act within powers. Directors must act in accordance with the company's constitution and only exercise powers for the purposes for which they were conferred. This is the duty most often engaged in disputes about improper share allotments, defensive tactics against takeovers, or directors using powers to entrench their own position.
• Section 172 – Duty to promote the success of the company. Directors must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole, having regard to a non-exhaustive list of factors: the likely long-term consequences of decisions, the interests of employees, the need to foster business relationships with suppliers and customers, the impact on the community and environment, the desirability of maintaining a reputation for high standards of business conduct, and the need to act fairly between members. This is the duty that generates the most advisory work, and the one boards most often need help evidencing properly.
• Section 173 – Duty to exercise independent judgment. Directors must not fetter their discretion, save where they act in accordance with an agreement the company has properly entered into, or in a way authorised by the company's constitution.
• Section 174 – Duty to exercise reasonable care, skill and diligence. This is judged against a dual objective/subjective standard: the general knowledge, skill and experience reasonably expected of someone carrying out the director's functions, and the actual knowledge, skill and experience that the individual director has. A finance director with specialist accounting expertise will be held to a higher standard on financial matters than a lay non-executive.
• Section 175 – Duty to avoid conflicts of interest. Directors must avoid situations in which they have, or could have, a direct or indirect interest that conflicts, or may conflict, with the interests of the company — particularly in relation to the exploitation of property, information or opportunity. This duty can often be satisfied by authorisation from independent directors or, where the articles permit, the board itself.
• Section 176 – Duty not to accept benefits from third parties. Directors must not accept benefits from third parties conferred by reason of their being a director, or their doing or not doing anything as a director, unless acceptance cannot reasonably be regarded as likely to give rise to a conflict of interest.
• Section 177 – Duty to declare interest in proposed transactions or arrangements. Where a director is directly or indirectly interested in a proposed transaction with the company, that interest must be declared to the other directors before the company enters into it, either at a board meeting or by written notice.

These duties are owed to the company, not to individual shareholders, creditors or third parties, and are enforceable primarily through derivative claims under sections 260 to 264. Advisers should also remember that when a company is or is likely to become insolvent, section 172 is effectively displaced by the paramount duty to consider or act in the interests of creditors — a point that continues to generate contentious litigation and one worth flagging early to any board operating under financial pressure.

Companies House Reform: Where Implementation Actually Stands

ECCTA gave Companies House new powers and imposed new obligations on companies, directors and people with significant control (PSCs), but the rollout has been phased and solicitors need to be precise about what is actually in force rather than working from the Act's original timetable.

Identity verification is now live

Companies House confirmed that identity verification became mandatory from 18 November 2025. From that date, anyone newly appointed as a director, or newly registered as a PSC, must verify their identity either through GOV.UK One Login or via an Authorised Corporate Service Provider (ACSP) such as a solicitor or accountant with the appropriate registration. Existing directors and PSCs as at that date are not required to verify immediately; instead, a 12-month transition period applies, during which existing directors must confirm they have verified their identity when they next file their company's confirmation statement, and existing PSCs must do so within specific 14-day windows tied to their status. Companies House has estimated that 6 to 7 million individuals will need to complete verification by around mid-November 2026, which makes this a live compliance deadline for the current advisory year, not a future one. Failure to verify carries real teeth: a company cannot make filings, and acting as a director without verification once the duty applies is a criminal offence.

Corporate directors: restricted, but full commencement still pending

ECCTA amends the Companies Act 2006 so that a corporate entity can only act as a director of a UK company where all of that corporate director's own directors are natural persons who have themselves completed identity verification. This principle is settled law, but Companies House has indicated that full implementation for corporate directors, corporate members of LLPs, and officers of corporate PSCs will follow identity verification for individuals, with the rollout for these categories still being finalised rather than fully in force at a fixed date. Solicitors advising groups with corporate directors in their structure should treat this as an active watch item: existing corporate director arrangements that do not meet the natural-person, verified-director test are likely to need restructuring, and clients should not assume the status quo will simply continue unchallenged.

Enhanced powers for the Registrar

Companies House has also begun exercising its expanded statutory powers to query information filed on the register, reject or require correction of information that appears inconsistent, incomplete or fraudulent, and remove information that should not have been accepted. Companies House has reported disqualifying dozens of directors and pursuing significantly increased numbers of prosecutions for filing offences over the past year as it uses these powers more assertively, alongside stronger checks on registered office addresses and a ban on the use of PO box addresses as a registered office. For solicitors, this means filings can no longer be treated as a purely administrative formality — inaccurate or inconsistent information is now more likely to be challenged, queried or acted upon by the Registrar directly.

The Failure to Prevent Fraud Offence

Separately from the Companies House reforms, ECCTA created a new corporate criminal offence of failing to prevent fraud, which came into force on 1 September 2025. The offence applies to "large organisations" — broadly, those meeting two of three thresholds: more than 250 employees, more than £36 million turnover, or more than £18 million in total assets — and makes an organisation criminally liable where a person associated with it (an employee, agent, subsidiary, or other person performing services for it) commits a fraud offence intended to benefit the organisation, unless the organisation had reasonable fraud prevention procedures in place at the time.

The offence is a genuine departure from the ordinary "identification principle" that has historically made it hard to prosecute companies for the acts of employees below board level: liability under this new offence does not require proving that senior management knew about or directed the fraud. Government guidance published ahead of commencement sets out six principles for reasonable procedures — top-level commitment, risk assessment, proportionate procedures, due diligence, communication and training, and monitoring and review — closely mirroring the structure of the Bribery Act 2010 adequate procedures guidance that many corporate advisers will already be familiar with. Boards of qualifying organisations should have had a documented fraud risk assessment and updated procedures in place well before commencement, and any board that has not yet done this work is already behind.

Practical Implications for Advising Boards

Bringing the statutory duties and the reform agenda together, several practical points should be on every corporate solicitor's client checklist this year.

• Audit director and PSC verification status now. Do not wait for the confirmation statement deadline to arrive. Identify which directors and PSCs across a client's group still need to verify, and build verification into the standard onboarding process for any new appointment going forward.
• Review corporate director structures. Where a client uses a corporate entity as a director of a UK subsidiary, check whether that arrangement will satisfy the natural-person verification requirement once fully in force, and plan any restructuring in good time rather than reactively.
• Strengthen section 172 evidence trails. Larger companies, and particularly those preparing a section 172(1) statement in the strategic report, should ensure board minutes properly evidence consideration of the section 172 factors — not as a box-ticking recital, but as a genuine record of how competing stakeholder interests were weighed in a specific decision. This is increasingly scrutinised by investors, auditors and, where relevant, the Financial Reporting Council.
• Fraud prevention procedures for qualifying organisations. Confirm whether a client meets the large organisation thresholds and, if so, that a fraud risk assessment and reasonable procedures are documented, communicated and reviewed on a regular cycle, not left as a one-off compliance exercise from 2025.
• Filing accuracy and registered office compliance. With Companies House actively querying and acting on filings, clients should treat annual confirmation statements, PSC registers and registered office details as substantive compliance obligations rather than administrative housekeeping.
• Board induction and training. New director appointments are a natural point to refresh understanding of sections 171 to 177 alongside the new verification and fraud prevention obligations, so directors understand both their personal duties and the organisation's wider compliance position from day one.

Commercial contract terms are also being revisited by many boards in light of this wider economic crime agenda, particularly warranties and indemnities addressing fraud prevention procedures; solicitors advising on transactional documents may find it useful to cross-reference current thinking in this commercial contracts law update when drafting or reviewing these provisions.

Frequently Asked Questions

Do all directors need to verify their identity immediately?

No. Identity verification has been mandatory for new directors and PSCs since 18 November 2025, but existing directors and PSCs benefit from a 12-month transition period, with existing directors confirming verification alongside their next confirmation statement and existing PSCs verifying within specified windows during that same 12 months.

What happens if a director does not verify their identity in time?

Once the duty to verify applies to an individual, acting as a director without having done so is a criminal offence, and the company will be unable to make filings at Companies House until compliance is restored, alongside financial penalties for continued non-compliance.

Which organisations are caught by the failure to prevent fraud offence?

The offence applies to "large organisations" meeting at least two of three thresholds: more than 250 employees, turnover above £36 million, or total assets above £18 million. Smaller organisations fall outside the offence itself but can still be prosecuted as a party to fraud under general criminal law.

Does the section 172 duty change once a company is insolvent or facing insolvency?

Yes. Where a company is insolvent or bordering on insolvency, case law establishes that directors' duties effectively shift to require consideration of, or acting in, the interests of creditors as a whole, displacing the ordinary section 172 focus on the success of the company for members. Directors and their advisers should treat this shift as a trigger point for closer governance scrutiny.

The combination of long-standing statutory duties and a fast-moving Companies House reform agenda means corporate solicitors need to keep both areas current at the same time. Learnsignal's CPD courses help legal professionals stay on top of company law developments like these as they happen, with structured, verifiable learning that fits around a busy practice.