Directors’ Responsibilities

Who can be a company director?

There are no formal qualifications required to become a company director.

A director must be at least 16 years old, must not be an undischarged bankrupt and cannot be disqualified from being a director by a court.

What is a director of a limited company?

There is a clear distinction between a company director, who is employed by the company, and a shareholder, who actually owns part of the company based on the amount of shares they hold. Many directors are also shareholders and, in a personal service company, they are usually the sole director and shareholder.

A limited company is a legal entity with its own constitution and articles of association. These are written rules about running a company. They specify the powers you’re granted as a director and the purpose of those powers. As a director, you must always act in the best interests of the company. Companies House describes this as ‘promoting the success of the company’.

What are a director’s statutory duties?

The statutory duties and responsibilities of a company director are set out in the Companies Act 2006, the company’s articles of association and any service contract that is put in place between a director and the company. The Companies Act 2006 provides the statutory regime for directors’ duties, which consists of seven requirements which means a director of a company must:

  • act only in accordance with the powers included in the company’s constitution and articles of association.
  • make decisions for the benefit of the company and not yourself. This means ‘promoting its success’ at all times. This may seem confusing if you are the sole shareholder, employee and director, but a decision that may benefit you personally may not be in the best interests of the company.
  • exercise independent judgement in all decision-making.
  • exercise reasonable care, skill and diligence, as expected of someone in your position.
  • avoid or declare any conflict of interest.
  • avoid the acceptance of benefits from third parties or using their position to make private profits.
  • declare an interest in a proposed transaction or arrangement with the company before it enters into such a transaction.

What are the day to day management duties of a director?

The day-to-day management of a company is delegated to the directors by its shareholders. The company may employ people to help carry out these tasks, such as a company secretary, accountant or tax specialist. The following list is not exhaustive but your responsibilities include duties such as:

  • ensuring the company is registered for and pays its taxes. Associated returns for Corporation Tax, VAT and PAYE (payroll) must be submitted correctly to HMRC and Companies House and outstanding amounts paid within statutory deadlines. Ultimately, the director of a company is legally responsible for ensuring returns are submitted and taxes paid on time.
  • submitting a confirmation statement to Companies House, the statement provides a snapshot of company information to be filed initially within 12 months and 28 days of the company’s formation and then each year thereafter
  • filing the company’s annual financial statements with Companies House within nine months of the company’s accounting period ending
  • paying Corporation Tax due on the company’s profits to HMRC within nine months and one day of the accounting period ending
  • filing the company’s annual financial statements and Corporation Tax return (CT600) with HMRC within 12 months of the company’s accounting period ending. You need to file a return regardless of whether the company makes a profit or loss.

Take a look at our limited company accountancy prices to see how we can help you managing your business finances.

Consequences of breach of directors’ responsibilities

Directors are subject to a variety of sanctions for breach of their duties. The limited liability afforded to a limited company applies only to its shareholders and not its directors. Directors may be personally liable where they fail to meet their statutory responsibilities under company law or provide misleading financial reports and accounts.

Breach of company law may be a criminal offence. For instance, breach of the Companies Act 2006 requirements on corporate administration (e.g. keeping company records and making statutory filings) may constitute an offence for which the company and every director in default may be liable. Generally, you need to keep company records for at least six years, after the end of the company’s year end.

Directors and other officers may also be liable to fines under other legislation to which the company is subject, for instance, employment law or data protection laws.

Where breaches are serious, a court may disqualify a person from being a director of a company or in any way concerned with its management. The possible grounds for disqualification are wide, including persistent breach of company law (e.g. to make statutory filings), fraudulent trading or, where the company has become insolvent, that the director is unfit to be concerned in the management of a company.

So, as you can see being a limited company director comes with a lot of
responsibilities. However there also many advantages running your business as a limited company.

Get in touch with our expert staff so we can help.