Under sections 171 to 177 of the 2006 Companies Act, a company director has seven key duties dependent on certain equitable principles and regulations. These include:
Promoting The Success Of The Firm
A company director is required to act in such a way that they promote the success of their company and also benefit its partners.
While fulfilling his/her duties, a director needs to take into account the outcome that each decision has on other members, which includes financiers, employees, communities, consumers and suppliers. Also, a company director must consider the impact of his/her decision on the environment, and the long-term goal(s) of the company.
Performing Actions Within His/Her Powers
A company director needs to act as per the decision-making powers mentioned in the company’s constitution. This is also the governing file that lays out the guidelines for running a business. The powers of each director may vary considerably based on the type of business they’re running, and also if the company undertakes the model articles of association or not.
Exercising Diligence, Skill, And Care
A director needs to exercise reasonable diligence, skill, and care whilst performing all of his/her duties. Thus, a company director must possess a basic skill, experience, and knowledge that is reasonably looked for in an individual holding such an important position in a company.
Exercising Independent Discernment
Through independent discernment, a company director is able to develop an informed view of various undertakings of a company, instead of just fulfilling the requirements of the majority of the partners or other third party organisations.
Ensuring Conflicts Of Interests Are Avoided At All Costs
A company director needs to manage all types of situations where a conflict of interest may arise affecting their loyalty and objectivity to the company.
Some of these include:
- Holding a major position in a company that’s a direct competitor of the firm.
- Holding most of the shares within an organisation or acting as a director that might be, or is, impacted by the company activities (e.g., a competitor, supplier, or client of the company).
- Maintaining personal/business relationships with people or other members that are, or might be, affected by company activities.
- Exploiting, for their individual gain, opportunities, or information that belongs to a company, even in the event the company has not been able to put these opportunities or information to good use.
Rejecting Third Party Benefits
A company director must also reject any third party benefits offered because of their position, or as an outcome of refraining from doing (or doing) anything as a director.
Declaration Of The Type Of Interest In Proposed Undertaking Or Transaction
In case a company director happens to be directly or indirectly interested in a given settlement or transaction(s) with the company, it’s important that they declare such interest to other directors.
Other Responsibilities Of A Company Director
Along with the general statutory responsibilities mentioned above, the 2006 Companies Act and other legislation (for example: licensing, employment, data protection, health, and safety), in addition to any existing service contract, impose several key obligations on the director. These rules, most of which may be of an administrative nature, surface due to the director’s responsibility for making sure that the company abides by its statutory obligations including:
1. Filing Confirmation Statement On A Yearly Basis
Each year, company directors are required to file a Confirmation Statement. The document, formerly known as an ‘Annual Return’, confirms that the data preserved at the registrar is authentic and updated.
2. Registering Company Business Tax
Within 90 days of starting its operations, a limited firm must register for Corporation Tax. Additionally, it is essential to register the business for additional HMRC services and taxes, like CIS, PAYE, and VAT.
In the event that a company has employees, they must operate PAYE (‘Pay As You Earn’) for deducting National Insurance Contributions and Income Tax from the wages of workers.
Directors need to confirm the details of:
- the SAIL address (if applicable)
- the company secretary (if they are appointed)
- SIC code
- shares of the firm
- statutory records location
- the office registered at Companies House
3. Filing Annual Accounts
In order to report the financial activity and trading status of the company, directors need to file annual accounts. The initial accounts must be delivered 1 year and 9 months after the company was officially formed. The succeeding annual accounts need to be filed within 9 months of the end of the company’s financial year.
Firms that are presently dormant (i.e., ones that aren’t trading) must file dormant accounts with the registrar.
4. Filing Annual Accounts And Company Tax Returns With HMRC
As one of the components of the Company Tax Return, annual accounts need to be delivered to HMRC in order to report and calculate the amount of Corporation Tax owed by the company. The final date of filing is one year after the ‘accounting timeframe’ of the company for Corporation Tax has ended.
Company directors need to ensure any Corporation Tax the company owes is paid within nine months and one day of the accounting period for Corporation Tax ending. Remember that you must pay your Corporation Tax to HMRC prior to your Company accounts and Tax Return deadline.
Irrespective of whether you appoint an accountant to look after the accounting, tax returns, and bookkeeping of your company or not, the company director is ultimately responsible for making sure all the payments and filings are up to date and made in a timely manner.
Reporting Changes Made To The Company
Directors must also report certain changes to the registrar, which include:
- Removing/appointing a director.
- Change in the company information.
- Change of company address.
- Change of director’s details.
- Removing/appointing a company secretary.
- Change of secretary’s details.
- Use of SAIL address.
- Change of guarantor’s information.
- Matters associated with new shares.
- Location changes of statutory records.
- Change of association articles or name of the company.
- Registration dues.
- Change of information associated with the PSC.
Directors must inform HMRC each time the contact information of the company changes or when a tax consultant or accountant is hired.
Maintaining The Stationery Of A Firm
A company director is accountable in ensuring that the entire name of the company is added to all types of official stationery of the company, which includes letters, files, emails, marketing material, publications, etc.
Company directors must verify that all of the above display the information below:
- Official company address.
- Jurisdiction under which a business is registered.
- That a company is a limited firm.
Keeping Company Details
Directors are required to maintain precise and up-to-date information with regard to the company as well as its financial database. These records, which are typically stored at the registered workplace of a company, include:
- Statutory documents of company shareholders, directors, PSC’s, and secretaries.
- Financial and accounting database.
- Share and stock transfer certificates.
- Minutes of meetings and resolutions.
- Charges against the assets of a company
All of these records are required to be maintained in a digital file or hard copy format for no less than six years, however, it’s recommended to retain them for ten years.
In the event that a company director also happens to be a shareholder of the company, they are required to register for Self Assessment besides reporting any dividend earnings (from shares) made along with their director’s income.
Personal Accountability Of Company Directors
In the event that the company director is unable to perform their duties, they may be prosecuted, disqualified, or face criminal charges. A company may also face serious repercussions, which include penalties for late filing, charges, and the possibility of being dissolved by the registrar, if the directors fail to fulfil all corporate responsibilities and roles.
In performing their roles as company agents, directors are unlikely to be held liable for the debts of the company, except if they also hold company stocks, as limited firms are seen as a separate legal entity. Nonetheless, a company director might be personally accountable for company dues in a few circumstances. Some of these are given below:
- Offering a personal guarantee to a lease or company finance.
- Participating in unfair trading practices if the company becomes insolvent (e.g., trading even if there’s a loss).
- Participating in dishonest trading activities, such as:
- Trying to raise monies via fraudulent means
- Obtaining loans or incurring debt despite realising there may be difficulty making repayment.
- Taking advantage of company transactions (at financiers’ loss), including:
- Selling company assets below their market price.
- Hiding company assets.
- Paying dividends to company shareholders even when the company is in financial difficulty.
- Approving unauthorised loans to company directors or enjoying high income in circumstances where a company is not able to aid distribution of funds.
- Approving unauthorised payments to specific lenders.
- An over-drawn loan account of a company director.
- Wilfully coming short of deducting NIC and PAYE.
- Failing to take into account statutory minimum payment prerequisites.
- Making unauthorised deductions from the salaries of employees.
A director may likewise be held individually accountable for actions or omissions taken while holding the position, including wrongful discrimination, endangering the pensions of employees via chronic mismanagement, offences associated with health and safety, deliberately overlooking the involvement of other members in fraudulent activities, money laundering charges or bribery.
In some cases, a company director can be prohibited from holding their position for as many as 15 years. In addition, they may be imprisoned for serious charges.
Although some of the information above may seem terrifying at first, a company director can easily safeguard himself/herself against personal liability by ensuring activities are carried out in good faith, abiding by their statutory roles and duties, and purchasing suitable insurance policies including Professional Indemnity or Directors Liability cover.