A non executive director, usually shortened to NED, is a member of a company’s board of directors who isn’t involved in running the business day to day. They attend board meetings, vote on board decisions and challenge the people who do run the business, but they have no operational job and aren’t employees. In law they’re directors like any other, with the same duties and the same potential liability.
A growing business tends to benefit from a NED when it needs someone on the board who will question its plans, its numbers and its people, and who has seen the problems the founders haven’t met yet.
I’ve started and run over 30 businesses, raised over £250m for my own, and had an 8-figure exit.
What a Non-Executive Director Is and Isn’t
The Companies Act 2006 doesn’t use the word non-executive. A director is a director, and the non executive director role is defined by what the company asks them to do, not by a separate legal position. The British Business Bank’s guide to what a non-executive director is makes the same point: both are subject to the same duties, responsibilities and potential liabilities.
| Executive director | Non-executive director | Adviser | |
|---|---|---|---|
| Seat on the board | Yes | Yes | No |
| Vote on board decisions | Yes | Yes | No |
| Runs part of the business | Yes, usually full time | No | No |
| Employee of the company | Usually | No | No |
| Statutory directors’ duties | Yes | Yes | No |
| Registered at Companies House | Yes | Yes | No |
| How they’re usually paid | Salary | A fee, sometimes shares | Options or shares, sometimes a fee |
A NED is also different from a member of an advisory board. An adviser gives advice the founder can take or leave. A NED has a vote, and the board’s decisions are partly theirs.
The Legal Duties of a Non-Executive Director
The core non-executive director responsibilities in law are the same as any director’s. Every director of a UK company owes the company the 7 general duties in sections 171 to 177 of the Companies Act 2006. They’re owed to the company itself, not to the shareholder who nominated the director or to the founder who invited them.
| Section | Duty | What it means for a NED |
|---|---|---|
| 171 | Act within powers | Follow the articles of association and use the board’s powers only for the purposes they were given |
| 172 | Promote the success of the company | Decide in good faith what’s best for the members as a whole, with regard to employees, customers, suppliers, the community and the long term |
| 173 | Exercise independent judgement | Make their own decisions, rather than follow whoever appointed them |
| 174 | Exercise reasonable care, skill and diligence | Meet the standard of a reasonably diligent director in that role, and the higher standard their own experience sets |
| 175 | Avoid conflicts of interest | Avoid situations where their own interests conflict with the company’s, unless the board authorises it |
| 176 | Not accept benefits from third parties | Not take anything from an outsider because they’re a director or for what they do as one |
| 177 | Declare an interest in a proposed transaction | Tell the other directors before the company enters a deal they have a personal interest in |
Section 174 sets a standard with 2 parts: the knowledge, skill and experience that can reasonably be expected of someone doing that director’s job, and the knowledge, skill and experience the director actually has. A NED appointed because they’re a qualified accountant is judged as an accountant when the board signs off the accounts.
Being part time doesn’t lower the standard. A NED who approves figures without reading them is still measured against what a reasonably diligent director would have done.
A NED’s protections include a proper letter of appointment, directors’ and officers’ insurance arranged by the company, and board papers early enough to read them.
When a Growing Business Needs One
A private company has no legal obligation to appoint a NED, and it needs only 1 director. The reasons to appoint one are commercial, and they include things like:
- the founders run the board on their own and nobody questions the plan, the numbers or the hiring
- the business is growing into areas the founders haven’t run before, such as a second country, a regulated product or a much larger team
- the board needs experience it doesn’t have, such as a finance background before a raise or a sale
- customers, lenders or investors want to see a board that’s more than the founders
- the business is preparing for a sale or a listing and needs its governance in place first
Things an investor is looking for include:
- the founder, and whether they can deliver the plan
- the team and the board around the founder
- evidence of demand, such as paying customers and recurring revenue
- the size of the market and how fast the business can grow in it
- the future plans and what the money is going to be used for
A NED with a relevant, checkable record can strengthen the second point on that list. They don’t replace any of the others.
A company that lists its shares in the UK commercial companies category is held to the UK Corporate Governance Code 2024, which applies to financial years starting on or after 1 January 2025. Provision 11 says at least half the board, excluding the chair, should be NEDs the board considers independent. A private business has no such rule, but a business planning a listing will need to build its board towards it.
Investor-Appointed Non-Executive Directors
An investor putting in a significant sum often wants a seat on the board as part of the deal. The right to appoint a director goes into the term sheet and then the shareholders’ agreement and the articles, usually with the right to remove and replace that director.
An investor director has 2 positions to manage. They’re there because an investor sent them, and that investor will expect to hear how the business is doing. But once appointed, they owe the company the same duties as every other director, including independent judgement under section 173 and avoiding conflicts under section 175. When the company’s interests and the investor’s interests pull apart, as in a dispute over a sale price or a new share issue, the director’s legal duty is to the company.
The shareholders’ agreement usually deals with this in advance. It sets out what information the investor director can pass back to the fund, and how the board handles a conflict, such as the investor director leaving the room for a vote. The Corporate Governance Code treats a director who represents a significant shareholder as not independent. That’s one reason a business planning a listing adds independent NEDs alongside any investor directors.
Cost and Time Commitment
There’s no fixed fee for a NED in a private company. The British Business Bank suggests agreeing a fee based on the NED’s experience, their time commitment and any extra responsibilities, such as chairing the board. Some NEDs, particularly in startups, are paid partly or wholly in shares, and some are also investors who take a stake for the money they put in.
Paying in shares has its own issues. Shares given for work can create a tax bill for the person receiving them, which is covered in sweat equity, and every share or option goes on the cap table. The British Business Bank notes that equity given to a NED in place of a fee is sometimes too high, which can cause friction when new investors come in.
The time a NED gives is set in their letter of appointment, usually as a number of days a year. Board meetings are only part of it. Preparation, committee work, calls with the founder between meetings and any time spent on a sale or a raise all go on top. The Corporate Governance Code says NEDs should have sufficient time to meet their board responsibilities and should disclose their other significant commitments before appointment.
Say a NED’s letter sets 12 days a year. That might be 6 board meetings with a day of preparation each, leaving time for calls and introductions. If the company goes through a sale, the letter can say extra days will be agreed and paid for separately.
Finding and Onboarding a NED
The starting point is the gap on the board. A business that wants financial discipline before a sale needs a different person from one that wants contacts in a new market.
- Define the gap. Write down what the board is missing and what the NED is there to do, such as challenging the financial plan or bringing experience of a regulated market.
- Write the role. The skills, the time commitment, the fee or shares, and any committee work.
- Search. The founder’s network, the existing investors, specialist NED recruiters and director bodies such as the Institute of Directors.
- Check. References from boards they’ve sat on, their other commitments, any conflict with the company’s competitors or suppliers, and their record at Companies House.
- Appoint. The board or the shareholders appoint the NED under the articles. They sign a letter of appointment covering the role, time, fee, term, confidentiality and conflicts, and the company files the appointment at Companies House. Since 18 November 2025, a new director has to verify their identity with Companies House to be appointed.
- Onboard. The last 2 sets of accounts, the current management accounts, the business plan, the shareholders’ agreement and articles, the main contracts, and time with the management team before the first board meeting.
A NED appointment can be ended under the letter of appointment, and the shareholders can remove a director by ordinary resolution. A NED who is also an investor director may have a right to stay on the board under the shareholders’ agreement, and if relationships break down, the route out is set by that agreement. How disagreements between shareholders are resolved is covered in shareholder disputes.
Non-Executive Directors Outside the UK
The split between executive and non-executive roles is used in the US, Australia, Canada, Singapore and the UAE. In each, a NED is a director under local company law and carries the duties that law sets, and the rules on how many independent directors a company needs come from its stock exchange or governance code. A private company is generally free to set its own board.
FAQs
What does a non-executive director do?
A non-executive director sits on the board, votes on board decisions and challenges the executive team without running the business. They scrutinise performance, bring experience the board doesn’t have and help with things like strategy, a raise or a sale.
Do non-executive directors have the same legal duties as executive directors?
Yes, non-executive directors have the same legal duties as executive directors. UK company law doesn’t distinguish between them, so a NED owes the company the 7 general duties in sections 171 to 177 of the Companies Act 2006 and can be personally liable in the same way.
How much time does a non-executive director commit?
The time is whatever the letter of appointment sets, usually a number of days a year. It covers board meetings, preparation, committee work and contact between meetings, with extra time agreed for events such as a sale.
How much does a non-executive director cost?
There’s no fixed rate for a NED in a private company. The fee is agreed with the NED based on their experience, the time involved and any extra responsibility such as chairing the board, and some are paid partly or wholly in shares.
What is the difference between a non-executive director and an adviser?
A non-executive director is a member of the board with a vote and statutory duties, while an adviser only gives advice. Advisers aren’t registered at Companies House and have no power to make decisions for the company.
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This explains how non-executive directors generally work. It isn’t legal advice, and a solicitor should check the letter of appointment and the shareholders’ agreement before a NED is appointed.
