SQE1 directors' duties: what you must know and how it is tested

SQE1 directors' duties questions ask you to match a set of facts to one of the seven general duties in the Companies Act 2006, then to say who can enforce it and with what result. Learn each duty by its section number and its trigger. Read it with the wider Business Law and Practice guide.

SubjectBusiness Law and Practice (FLK1)

Key lawCompanies Act 2006, ss171-177

Question typeSingle best answer, five options

The rules to apply

The general duties are in ss171 to 177 and are owed to the company, not to individual shareholders. They are: act within powers and use powers for their proper purpose (s171); promote the success of the company for the benefit of its members as a whole, having regard to the factors in s172(1) such as employees, suppliers, the community, long-term consequences and reputation; exercise independent judgment (s173); exercise reasonable care, skill and diligence (s174); avoid conflicts of interest (s175); not accept benefits from third parties (s176); and declare an interest in a proposed transaction (s177).

Section 174 sets an objective minimum, the skill of a reasonably diligent person with the director's functions, and a higher subjective standard if the director has special skill. Section 175 covers exploiting property, information or opportunity, whether or not the company could have taken it. A conflict is not a breach if the board authorises it, and the conflicted director's vote does not count. Under s177 the director declares the interest before the company enters the transaction.

The company sues, or if the board will not, a member may bring a derivative claim under Part 11 with the court's permission. Members can ratify a breach by ordinary resolution, but the votes of the director and connected persons are ignored (s239).

Traps examiners use

Reading s172 as a duty to stakeholders. It is to promote success for the members as a whole, with regard to the listed factors.
Saying there is no s175 breach because the company could not afford the opportunity. That is irrelevant.
Forgetting that ratification disregards the votes of the wrongdoer.

Worked question 1

Mina is a director of Harbour Foods Ltd. She hears of a warehouse for sale that the company has been trying to find. The company cannot afford it. Without telling the board, Mina buys it herself. Which statement is correct?

A. Mina is not in breach because the company could not have bought the warehouse.
B. Mina is likely in breach of s175, whether or not the company could have taken advantage of the opportunity.
C. Mina is in breach only of s172, because she did not promote the success of the company.
D. Mina is in breach only of s177, because she did not declare an interest to the board.
E. Mina can avoid liability by resigning before she completes the purchase.

Answer: B. Section 175(2) says the duty applies to the exploitation of any property, information or opportunity, and it applies whether or not the company could take advantage of it. A is the classic wrong answer. C and D identify the wrong duty. E fails because resignation does not remove liability for an opportunity learned of as a director.

Worked question 2

Wen holds 5% of the shares in Brightline Ltd. The directors approved a contract at an inflated price with a company owned by one of them, and Brightline lost money. The board will not act. What is Wen's correct route to recover the loss for the company?

A. Sue the directors personally for breach of s172, because the duty is owed to shareholders.
B. Apply for a derivative claim under Part 11 of the Companies Act 2006, which needs the court's permission.
C. Pass a written resolution to remove the directors, which also recovers the loss.
D. Do nothing, because a shareholder can never bring a claim for a wrong done to the company.
E. Petition the court to order a special resolution ratifying the contract.

Answer: B. The duties are owed to the company, so the loss is the company's. A member may bring a derivative claim under Part 11 with the court's permission when the board will not sue. A is wrong because the duty is not owed to Wen. C is wrong because removal does not itself recover loss. D overstates the rule, and E has no basis in the Act.

Checklist before you move on

Name the duty by section number and its trigger.
State to whom the duty is owed (the company).
Check for authorisation or ratification, and whose votes count.
Check for member approval needs (s190) and the s177 or s182 declaration.
Identify the claimant: the company, or a member by derivative claim.

Test yourself on more original questions in our SQE1 practice questions.

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Questions

Who can enforce directors' duties?

The company, normally acting through its board. If the board will not act, a member may bring a derivative claim with the court's permission under Part 11 of the Companies Act 2006.

Is section 172 a duty to employees?

No. The director must act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Employees and others are factors to have regard to.

Can a director take a business opportunity if the company cannot afford it?

Not without authorisation. Section 175 applies whether or not the company could take advantage of the opportunity.

Sources: SRA: SQE1 Assessment Specification (from 1 September 2026); Companies Act 2006; Companies House guidance for directors. Checked 10 November 2026.