What duties do company directors have under New Zealand law?
Under the Companies Act 1993, directors have a number of obligations called “directors’ duties” as summarised below. These duties apply to all directors and shape how decisions must be made.
1. Act in good faith and in the best interests of the company
In most circumstances, directors must act in good faith and in what they believe to be the best interests of the company as a whole. This generally means prioritising the company’s long‑term success, not the interests of individual shareholders or founders. A director can benefit personally from a decision, but not at the company’s expense.
2. Use powers for ‘proper purposes’
Directors must exercise their powers for legitimate business reasons. Even if a decision is made honestly, it can still breach this duty if the underlying purpose is improper (for example, manipulating voting control or entrenching management).
3. Comply with the law and constitution
Directors must ensure the company complies with the Companies Act and its constitution (if it has one). Allowing the company to act outside these boundaries can expose directors to personal consequences.
4. Manage financial risk
There are also financial duties namely:
- not allowing the business to be carried on in a way that creates a substantial risk of serious loss to creditors; and
- not agreeing to obligations unless the director reasonably believes the company can perform them when required.
These duties do not prevent reasonable commercial risk‑taking, but they set limits when insolvency becomes likely.
5. Use reasonable care, diligence and skill
Directors are expected to exercise reasonable care, diligence, and skill, taking into account the company’s nature and their own role.
Other obligations
In addition to these duties, directors also have several other obligations under the Companies Act, including to:
- disclose material interests in transactions;
- disclose relevant share dealings; and
- ensure company records, including the share register, are properly maintained.
Practical takeaways
In early‑stage companies, founders often act as both shareholders and directors but the roles are treated very differently .
Understanding these duties early helps founders ensure that they make confident commercial decisions and exercise good corporate governance as a breach could results in personal liability.
FAQs
Do directors act for shareholders or the company?
- Directors must act in the best interests of the company itself, rather than for individual shareholders. In practice, this will often align with the collective interests of shareholders, particularly while the company is solvent, but the director’s duty remains owed to the company as a whole and can require broader considerations as circumstances change.
Is taking commercial risk allowed?
- The law allows reasonable risk‑taking, but not conduct that exposes creditors to the risk of serious and avoidable loss.
Can founders be personally liable as directors?
- Director duties apply regardless of company size or stage, and breaches can result in personal liability.
If my company has a managing director, do the duties change?
- Managing directors owe the same core duties as all other directors. However, because they are typically more involved in day‑to‑day decision‑making, the standard of care and diligence expected of them in practice may be higher in relation to operational matters within their control.
Does having a personal interest in a decision always cause a breach?
- Interests must be disclosed, but interested transactions are not automatically prohibited.
Need to know more? These may help:
- What is the difference between a director and a shareholder in New Zealand?
- What is a company constitution, and does my startup need one?
- What does good corporate governance mean for New Zealand companies?
- How often should boards review their risk and compliance frameworks?
- How do you manage conflicts of interest on a board in New Zealand?
- When can directors be personally liable in New Zealand?
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Special thanks to Partner Peter Fernando, Associate Tom Mohammed and Lucianna Crawford for preparing this article.
Disclaimer: The content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.
