What are your responsibilities as a Director?
To help new directors understand their responsibilities and position within a limited company, Zyla Accountants have written an article to help you navigate the process.
In a limited company, what is the role of the director?
A company director works for the company, while a shareholder owns shares of the company and owns part of it. There are many directors who are shareholders and, in a private service company (PSC), they are usually the only shareholder and director.
Limited companies are legal entities with their own constitutions and articles of association. A company's operating rules are outlined in this document. In these documents, you're specified what powers you're given as a director and what purpose they serve.
The responsibility of a director is to act in the company's best interest at all times. 'Promoting the success of a company' is how Companies House describes this.
Directorships can be held by anyone, right?
The requirements for becoming a company director are not formal or special. Generally, there aren't many restrictions. In addition to being at least 16 years old, a director must not have a history of bankruptcy and cannot be prohibited (disqualified) from being a director by a court order. Formerly bankrupt or disqualified individuals are sometimes permitted to become directors in special circumstances.
A director must be able to perform the duties below, even though there are no mandatory qualifications.
Which duties do directors have under the law?
Directors are governed by the Companies Act 2006, their articles of association, and any service contracts they have with the company. Companies Act 2006 sets out the statutory framework for directors' duties, which consists of seven requirements. According to the Companies Act, you 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’re 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.
As a director, what are your daily duties?
Shareholders delegate the day-to-day management of a company to its directors. In order to accomplish these tasks, the company may hire a company secretary, accountant, or tax specialist.
Let's begin by explaining some of the terms you'll come across as a company director that you might not be familiar with: the 'Accounting Reference Date' and 'Accounting Period'. These are important because Companies House and HMRC set different filing dates for information.
Upon incorporation (setup), Companies House assigns your company an "Accounting Reference Date". First Accounting Reference Date is the last day of the month in which the first anniversary of incorporation occurs.
You will often have an Accounting Reference Date longer than 12 months when filing your first set of Company Accounts. As an example, your Accounting Reference Date would normally be January 31, 2021 if you incorporated on January 7, 2020.
Companies are given an Accounting Period by HMRC that begins when they start trading and usually ends on their Accounting Reference Date when they file their Company Tax Return.
Among your responsibilities are the following:
Paying taxes and ensuring the company is registered. It is possible for your company to have to pay a number of taxes and also file associated returns. It is important to submit these correctly to HMRC and Companies House, and to pay outstanding amounts within the statutory deadlines. Taxes and returns must be filed and paid by the company's director on time.
Companies House requires an annual Confirmation Statement. Your Confirmation Statement is not the same as your annual accounts. Initially filed within 12 months and 28 days of the company's formation, and then every year thereafter, this form provides a snapshot of company information. You will also find information about 'Persons of Significant Control' involved in your company.
A company's annual financial statements must be filed with Companies House within nine months after its accounting period ends
Within nine months and one day of the end of the accounting period, pay Corporation Tax due to HMRC
Within 12 months of the company's accounting period ending, HMRC must receive its annual financial statements and Corporation Tax return (CT600). Regardless of whether your company is profitable or not, you must file a return.
Your company may also be required to file an Employment Related Securities return if you provide (or transfer) shares to employees or directors. The changes will need to be reported on an Employee Related Shares (ERS) return to HMRC.
In the event of a breach of directors' duties, what are the consequences?
There are a variety of sanctions that directors can face if they breach their duties.
Limited companies only have limited liability for their shareholders, not for their directors. It is possible for directors to be personally liable if they fail to meet their statutory obligations under company law, or if they provide misleading financial reports and accounts.
It may be a criminal offense to violate company law. For instance, companies and directors in default may be liable for breaches of corporate administration requirements under the Companies Act 2006 (e.g. keeping company records and filing statutory documents). Company records should be kept for at least six years.
In addition to fines under employment law and data protection laws, directors and other officers of the company may also be liable to fines under other legislation.
Depending on the severity of the breaches, a court may disqualify a person from being a director or managing the company. Directors may be disqualified for a variety of reasons, including persistent violations of company law (e.g. failing to file statutory reports), fraudulent trading, or when a company has become insolvent.
For advice in setting up a company, and all your accounting and bookkeeping requirements. Contact Zyla Accountants today who can help make the process swift and easy for you and your business.