Becoming a company director sounds rather grand. But if you believe that it is just about a grandiose title, then think again.
While it may look great on your business cards, the position of director is more than just a job.
Once you join the board of a company, you must meet certain legal responsibilities and financial duties as well as the daily work of running a business.
According to Companies House, there are more than 4 million limited companies in the UK. Each one includes at least one director (although usually more) and many probably didn’t realise how much work is involved.
So, before you take the step of becoming a director, consider what the role demands.
What is a company director?
A company director’s job is being responsible for the day to day running of a limited company. They do not necessarily own the business; the company is owned by shareholders.
In some cases, all the directors are shareholders, so they each own a percentage of the company depending on their investment. It is not uncommon for some directors to hold no shares in the business.
Anyone over the age of 16 can become a director; but if you are banned or have undischarged bankruptcies you cannot become a director.
If you have a certain amount of influence in a company, you may be treated as a director in some circumstances, even if you haven’t been appointed as one.
We have looked at whether sole traders should become limited in an earlier blog. To recap, being limited limits your liability should the business have financial difficulties.
You go from being the business to being an employee; you also become a director of the company even if you’re the sole shareholder. We also looked at how becoming limited involves extra legal filing requirements.
You can appoint other directors and form a board to help you run the business, especially if you want help in specific areas.
Many companies choose to outsource much of their accounts to an accountant, especially if they do not have a finance director. Ultimately, however, the responsibility lies with the directors. Even if you are director that does not deal with financial matters daily.
Failing to meet these responsibilities could result in fines. These responsibilities include:
Keeping accounting records
Your duty is to make sure you keep accounting records. They need to be well organised so company accounts can be prepared for filing. Your accounts must be a true representation of the financial state of the company.
Submit accurate accounts
As well as keeping management accounts so you can assess your financial position, you must submit accounts by a deadline to Companies House. All directors are responsible for ensuring this happens.
Submit your corporation tax return
Again, directors are responsible for submitting a corporation tax return. Called a CT600 form, it states what you owe HMRC and you must ensure the company pays any liabilities it owes.
Pay salaries and wages
Your duties include ensuring company employees are paid on time and correctly.
You are responsible for ensuring income tax and National Insurance is deducted correctly.
Meet financial responsibilities
Directors need to ensure the company meets all financial responsibilities needed to keep the company solvent.
Limited company directors are also legally responsible for a number of legal matters. This includes:
The Confirmation Statement should be submitted to Companies House each year.
Register of Personal with Significant Control
Producing a PSC register needs preparing and submitting as part of the Confirmation Statement and filed with Companies House. Your duty is to keep this up-to-date.
Notify Companies House of changes
If you change your registered company address or a director resigns, it is your duty to notify Companies House about such changes.
Act in the interest of shareholders
Limited company directors must also act in the interest of the shareholders. They must not use the company in their own interests so it is detrimental to the company. If it is considered they have done so, they face legal action.
There are seven general duties that a company director of a limited company must abide by. They are:
Act within powers
Directors must comply with the company’s constitution and exercise their powers within the business only for the reason they were given.
Promote the success of the company to benefit members
Your position means you have to pay regard to relevant matters, in particular:
- Long term consequences of any decision
- Business relationships and the impact of community operations on the environment
- Company employee’s interests
- Acting fairly between company members and desirability of the company’s reputation for high standards of business conduct
Use independent judgement
While you can take advice from others, directors must use their own judgement to decide whether it is in the best interests of your company to follow it.
Exercise reasonable care, skill and diligence
It is a director’s responsibility to keep well-informed about company affairs. If you have a skill that is relevant to your business, it is taken into account if problems arise.
Avoid conflicts between interests of directors and company
You should look to avoid the potential for conflict of interests between a director and the company. It does not apply if the company consents and if the consent meets formal requirements.
Do not accept benefits from third parties
If a third party offers a benefit because you’re a director of the company, or because you have certain powers as a director, you should not accept these. The company as a whole may accept them, however.
Declare interest in any proposed transactions/arrangements
Before any transaction takes place, directors should declare any interest they have in it, whether directly or indirectly.
Additional duties of directors include:
- Keeping the affairs of the company confidential
- Acting in the interest of creditors and considering them, particularly if there is a chance of insolvency.
Any director that does not carry out these responsibilities effectively can be liable under the Companies Act 2006. Failing to make the correct filings to Companies House is the most prominent responsibility.
The official guidance can be found in the Companies House section of the government’s website.
• If you are considering setting up a limited company or want to register your business, we would be happy to chat to you. Just contact us via our website or call 0191 603 1760.