(a)act in accordance with the company's constitution, and
(b)only exercise powers for the purposes for which they are conferred.
Definitions used in section 171
- director
In the Companies Acts “director” includes any person occupying the position of director, by whatever name called.
Defined in s.250 · see it in the full Act- company
“company” means a company formed and registered under this Act, that is—
Defined in s.1(1) · see it in the full Act(a)a company so formed and registered after the commencement of this Part, or
(b)a company that immediately before the commencement of this Part—
(i)was formed and registered under the Companies Act 1985 (c. 6) or the Companies (Northern Ireland) Order 1986 (S.I. 1986/1032 (N.I. 6)), or
(ii)was an existing company for the purposes of that Act or that Order,
(which is to be treated on commencement as if formed and registered under this Act).
(4) In this section and that Schedule “company” includes any body corporate.
Defined in s.1159(4) · see it in the full Act
Cases considering section 171 (149)
Eclairs Group Ltd v JKX Oil & Gas plc
The provision expresses the fiduciary duty to exercise directors’ powers only for the purposes for which they were conferred. The duty controls abuse of an otherwise available power and is not merely an implied term of the company’s articles. The court left open the precise test governing mixed proper and improper purposes. (see paras [14]; [30]; [46]-[55])
Lawrence Ewan McGaughey & Anor v Universities Superannuation Scheme Limited & Ors
The proper-purpose duty was treated as a duty owed to the company. Its alleged breach did not bypass the fraud-on-the-minority requirements for a derivative claim. (see paras [127]-[132]; [149])
Mark Faulkner & Ors v Vollin Holdings Limited & Ors
A director must act in accordance with the company’s constitution. The shareholders’ agreement was not part of that constitution, so the findings that nominee directors breached this duty could not stand (see paras [278]-[286]; [295]; [320]).
- BTI 2014 LLC v Sequana S.A. & Ors
- JKX Oil & Gas Plc & Ors v Eclairs Group Ltd
- Lloyd Edward Hinton v Dr Marek Stobinski
- Del Bosque Limited v Amir Shafie & Ors
- Benjamin Daniel Sparks & Anor v Emma Ashton Thomas & Ors
- Gardner Aerospace Holdings Limited & Anor v Antony John Upton
- Joseph Mark Taylor v James Lee Taylor & Anor
- GQA Qualifications Limited v Michael Clayton
- FP Redhill Limited & Ors v Ashank Patel & Ors
- The Conditioning House Limited v JBG Enterprises Limited & Anor
- Paul Wanderi Ndungu v SPG Limited (formerly known as Sportpesa Global Holdings Limited) & Ors
- Wilton Student Developments (Egerton) Limited v Kin Fan Ip
- Guorui Song & Anor v Kes Smith & Ors
- The Official Receiver & Anor v Azam Iqbal Haq, (Re Wifime Limited (in liquidation))
- Joanne Brierley v Christopher Howe & Anor (Re 36 Bourne Street Ltd)
- Mark Lane & Anor v Pamela Lane
- Omnimax International LLC v Simon Cullen & Ors
129 more judgments, and what each says about section 171, are in the case-law panel in the full Act.
Explanatory note
Amendments and notes
8 notes from legislation.gov.uk
Modifications
- C213Ss. 170-177 modified (1.3.2016) by The NRAM plc (formerly Northern Rock plc) Consequential and Supplementary Provisions Order 2016 (S.I. 2016/114), arts. 1(1), 7(1), (3), Sch. para. 1(e)
- C215Ss. 170-177 modified (16.7.2026) by The Modification of the Law (British Steel Limited Property Transfer) Regulations 2026 (S.I. 2026/833), regs. 1(2), 6(2), Sch. para. 1
- C216Ss. 170-177 modified (22.2.2008) by The Northern Rock plc Transfer Order 2008 (S.I. 2008/432), art. 17(1), Sch. para. 2(e)
- C217Ss. 170-177 modified (8.00 a.m. on 29.9.2008) by the The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008 (S.I. 2008/2546), art. 13(1)(3), Sch. 1 para. 2(e)
- C218Ss. 170-177 modified (9.30 a.m. on 7.10.2008) by The Heritable Bank plc Transfer of Certain Rights and Liabilities Order 2008 (S.I. 2008/2644), art. 26, Sch. 2 para. 2(e)
- C219Ss. 170-177 modified (retrospective to 30.3.2009 at 8.00 a.m.) by The Amendments to Law (Resolution of Dunfermline Building Society) Order 2009 (S.I. 2009/814), arts. 1(2), 7, Sch. para. 2(e)
- C220S. 171 applied (8.12.2017) by The Risk Transformation Regulations 2017 (S.I. 2017/1212), regs. 1(2), 83(1) (with reg. 189)
Commencement
- I40S. 171 wholly in force at 1.10.2007; s. 171 not in force at Royal Assent see s. 1300; s. 171 in force at 1.10.2007 by S.I. 2007/2194, art. 2(1)(d) (with savings in art. 12 and subject to transitional adaptations specified in Sch. 1) this amendment is subject to savings and/or transitional provisions, see the commentary.
323.This duty codifies the current principle of law under which a director should exercise his powers in accordance with the terms on which they were granted, and do so for a proper purpose. What constitutes a proper purpose must be ascertained in the context of the specific situation under consideration.
324.This duty codifies the director’s duty to comply with the company’s constitution. The constitution is defined for the purpose of the general duties in section 257. As well as the company’s articles of association it includes:
decisions taken in accordance with the company’s articles; and
other decisions taken by the members (or a class of them) if they are to be treated by virtue of any enactment or rule of law as decisions of the company, for example a decision taken by informal unanimous consent of all the members.