If you’re thinking about setting up a limited company, it’s important that you’re aware of the responsibilities and duties that come from being a director.
When you’re the director of a limited company, you are responsible for the strategic and operational decisions, as well as its day-to-day management, but you have other obligations to fulfil, such as legal responsibilities and admin duties, which are detailed in the Companies Act 2006.
As contractor accountants, we can help you learn more about what is expected of you as the director of a limited company.
Who Can Be a Director?
Some individuals may wonder whether they can become directors, especially if they’re interested in setting up a company. If you’re also worried about this or concerned that you’re not eligible to become a director, we can put your mind at ease.
This is because most people can be directors of a limited company. You don’t need a formal qualification, for instance, nor do you need a degree.
The only things to consider, however, is that you must be, at least, 16 years old, have no history of bankruptcy and have not been disqualified by court from being a director.
In short, apart from a select few limitations, you just need to be able to show that you can perform your duties as a director.
7 Duties of Limited Company Directors
In the Companies Act 2006, you can find a detailed list of duties that directors need to comply with. Directors have a great deal of power in the company, and these duties ensure that the interests of the business are protected.
So, if you’re a director, you need to observe the following:
1. Duty to act within powers – As a director, you need to act in accordance with the company’s constitution, which is defined by its memorandum and articles of association. Directors must also only use their powers under the terms conferred to them.
2. Duty to promote the success of the company – Directors have to act in good faith and promote the success of the company for everyone’s benefits. This means it’s important to consider long-term consequences of any decisions made, as well as ensure good relationships with suppliers and customers.
The interests of the staff have to be taken into account too, as does the impact of the company on the community and the environment. In essence, as a director, you have to act fairly, comply to rules and strive to maintain the company’s high standards.
3. Duty to exercise independent judgment – When you become a director, you have to be able to demonstrate independent judgment, which also means playing an active role in the company.
4. Duty to exercise reasonable care, skill and diligence – It’s expected that directors show a good level of care, skill and diligence in their job. This means they must have the general knowledge, experience and skill required to act as a director of the company. For example, if a director has a financial background, they are held to a higher standard when it comes to financial issues and are expect to excel in that area.
5. Duty to avoid conflicts of interest – Limited company directors must avoid situations in which there are conflicts of interest; mainly, this refers to the exploitation of property, information or opportunities.
While there isn’t a specific definition as to what this conflict may entail – or a set of rules that can help you to avoid it – certain situations are more likely to lead to a conflict of interests. For example, multiple directorships, several advisory positions and personal interests.
6. Duty not to accept benefits from third parties – As the director of a limited company, you can’t accept benefits from a third party (someone other than the company) if they are related to the fact that you’re a director. If the benefits won’t be seen as a conflict of interest, you’re not in breach of this duty.
7. Duty to declare interest in proposed transaction or arrangement – If you’re a director and are interested in a potential transaction or arrangement with the company, it’s crucial that you declare the nature of the proposal to other directors, if they exist. These declarations have to be made before the transactions or arrangements take place.
Directors have to be able to prove they are fulfilling these duties. Usually, they can do this with minutes, which have to be kept for a decade. Board meeting minutes should provide a record of decisions and other actions taken, as you may have to use them as evidence later down the line. Of course, this may not happen, but it’s important to keep accurate records, nonetheless.
Obligations to Companies House
It’s not just these duties that you have to consider when you become a director. You also need the company to fulfil its obligations with Companies House, for example, which entails submitting key documents and reports in a timely manner.
These documents include a confirmation statement, which has to include any changes in shareholders and directorships, including who owns which shares. Directors are responsible for registering charges. While directors can delegate these obligations to their admin department, they are still responsible for them, so they have to make sure they are right.
A limited company has to stay on top of its tax obligations, and directors are responsible for this. If you’re the director of a limited company, you have to make sure that the business is compliant when it comes to corporation tax, national insurance contributions and VAT. This includes ensuring that all paperwork is accurate and submitted to HMRC on time.
You need to file Form CT600 once a year as well, which has details of your company’s income and taxable profit.
As the director of your company, you have to submit an annual self-assessment of your personal income and allowances by 31st January. As soon as you have your P60, you can file your self-assessment.
When it comes to salaries, you can pay yourself a salary through the company’s PAYE scheme, and the necessary income tax and National Insurance contributions need to be deducted. You can also receive dividends.
If you have to remove money from the company – not as a salary or dividend, but as a loan – then you have to keep a detailed record of the loan and pay any potential tax on it.
As limited company accountants, we’re happy to help with any queries you may have about your tax obligations, as well as your responsibilities as a director.
Being the director of a limited company offers many benefits, but it also comes with a host of obligations that you must stay on top of. These also include health and safety requirements, especially if you employ staff, as you need to provide a safe workspace.
The safety requirements will depend on the industry you’re in. For example, if you own a construction company, there are more risks involved than if you work from an office.
Other responsibilities include following employment law to the letter. As a director, you must comply with the law and ensure that your company doesn’t discriminate against people and that all employees are automatically enrolled in pension schemes, for instance.
You also have a duty of confidentiality to your company, so information should only be used or disclosed if it benefits the business.
What About a Company Secretary?
While every company must have, at least, one director, it doesn’t have to have a secretary if it’s a private limited company. Generally, a secretary is there to take on some of the director’s responsibilities, which helps to reduce their workload.
A secretary’s duties can include filing confirmation statements and tax returns, keeping company records, reporting changes to HMRC and/or Companies House and managing payroll.
What Happens If You Don’t Meet Your Legal Responsibilities?
You can be disqualified from being a director if you’re unable to meet your legal responsibilities which, as mentioned, include following the company’s rules, keeping accurate records and reporting changes, filing accounts and company tax returns, announcing potential conflicts of interest and paying corporation tax.
If a director doesn’t comply with these and other obligations, they can be disqualified. Directors can be reported for:
Allowing the company to carry on trading when it can’t pay its debts.
Not keeping adequate records.
Not sending accounts and returns to Companies House.
Not paying all due tax.
Using company money, properties or other assets for personal benefits.
The Insolvency Service can investigate you as a director (or your company), if there have been complaints or if the business is involved in insolvency proceedings. Other organisations, like Companies House, can try to get you disqualified as a director as well.
If you’ve received a letter saying that the disqualification process has started, you can wait to be disqualified and then contest it in court or disqualify yourself to avoid court actions against you.
It’s important that you get legal advice if you’re being investigation or get a disqualification letter, as this is a serious matter with serious consequences.
After all, if you’re disqualified, you won’t be able to be a director of a company for up to 15 years; you won’t be able to form, market or run a company either. If you breach these terms, you can be fined or sent to prison for up to two years.
This information will be published online, as Companies House has a database of disqualified directors. In addition, the Insolvency Service register also shows directors who have been disqualified in the past three months and why.
Gorilla Accounting Can Help
It can be a challenge to stay on top of all your duties and responsibilities, especially if you’re the only employee of your company, as you have to do everything yourself. While we can’t help you to run your daily operations, we can help with your legal and tax obligations.
We provide accounting for contractors, which means we can shoulder the burden of handling your accounts. We can, therefore, help you to monitor your financial situation to make sure there are no issues and can assist in maximising your profits.