If you’ve recently set up a limited company and are proudly the director of your own business – congratulations!
As a director of your own limited company, you now have a range of responsibilities that need to be fulfilled on a continual basis.
The most obvious one is running the company. That will be the most exciting part for many company owners; meeting new clients, finding new opportunities, advertising your services and more.
Alongside that, though, comes a number of legal, financial and administrative obligations to keep HMRC happy and to ensure your business is run compliantly.
Remember, too, that as a limited company, your company is a separate legal entity from yourself. You can find out more by clicking here.
That means that every decision you make, financial or otherwise, has to benefit the company and not yourself.
Your responsibilities as a limited company director
Some of these responsibilities are legal responsibilities as per the Companies Act 2006 (“Act”). The Act sets out seven general duties although compliance with those does not remove the need to obtain shareholder approval where the law or the Constitution requires. The duties are to:
- act within powers set out in the memorandum and articles of association (“Constitution”) and exercise powers only for the purposes that they were conferred;
- promote the success of the company for the benefit of the shareholders as a whole (save where the law requires them to act in the interests of company creditors);
- exercise independent judgement, (except, where restricted by an agreement entered into by the company or in a way authorised by the Constitution);
- exercise reasonable care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that the director has and would be reasonably expected to have in that role;
- avoid direct and/or indirect conflicts of interest;
- not to accept benefits from third parties offered due to being a director or doing or not doing anything as a director; and
- declare direct and/or indirect interest in proposed transaction or arrangement.
Your responsibilities as a company director also include duties on a practical day to day level:
- Keeping the company’s accounting records: You can hire an accountant to help, sure, but the responsibility for maintaining proper accounting records for the business falls on the directors shoulders. This responsibility cannot be delegated. Non-compliance could lead to the company being struck off, disqualification as a director, a criminal record, fine, or even imprisonment.
- Submitting annual accounts: Directors must provide a true and fair view of the company’s accounts at a specific date. That’s partly why keeping accurate accounting records is so important. Late filing will see the company being charged a penalty, while failure to deliver annual accounts could lead to all directors being prosecuted and fined. Any errors in accounts submitted remain the responsibility of the company directors, and not the accountant that prepared them.
- Keeping statutory records: Directors need to keep minutes, accounts, books and registers that reflect how the business is being run and record proceedings and decisions taken. Directors need to constantly maintain and keep them up to date (this can be the secretary’s role). Statutory registers must be kept at the company’s Registered Office address or a single alternative inspection location (SAIL) as per the Companies Act 2006.
- Managing the company’s finances: The company needs to be able to pay its debts, and it is the director’s responsibility to ensure that the company is able to do so and that it remains solvent. Usually company directors are not personally liable for company debts, however there are circumstances where this might not be the case and directors could be liable, for example:
- Under any personal guarantees you have given to a third party to guarantee payment of a debt by the company;
- If in the course of the winding up of the company, the business of the company has traded fraudulently (with intent to defraud);
- Any liabilities that have come out of your company after it has been investigated in relation to liquidation and found guilty of wrongful trading. This is when the company carries on trading when the directors know the company was insolvent and there was no reasonable chance of avoiding liquidation.
- Any liability where you have benefited from a transaction at the expense of the company’s creditors. (e.g. buying an asset for less than it’s worth)
- Any liability that comes from committing fraud while you were running the company.
- Using the company name in the five years after the company has gone into insolvent liquidation.
- Contractual obligations: It’s up to the company’s directors to make sure contracts are clear and watertight, and that the company name is legible on all written company correspondence. Directors must make sure that legal contracts they are entering in to are drafted correctly to be on behalf of and in the name of the company otherwise the director may become personally liable under the contract for the transactions.
- Company stationery: Similar to above, company stationery needs the company name to be legible on all physical and digital correspondence. Also included in official company documentation should be the company number as seen on Companies House, the business’s place of registration and the registered office address. Directors’ names don’t need to be on stationery. However, if one director’s name is stated on stationery (other than as a signatory), then all directors’ names must be stated, too.