Duties of a Company Director
Introduction
All types of limited company must have at least one director, including companies limited by shares or guarantee and community interest companies. Directors are responsible for the day-to-day management of the company and have the power to take business decisions and enter into contracts on the company's behalf.
Directors are subject to various restrictions and controls imposed by legislation and the company's articles of association. These include general and administrative duties set out in Part 10 of the Companies Act 2006.
Here we look at the role of a company director in private limited companies and consider their basic duties, responsibilities and potential liabilities. We also outline some of the implications of the Companies Act for company directors.
As this is a complex area of legislation, company directors should seek professional advice where necessary to ensure that they comply with all aspects of the law.
What is a company director?
The main functions of a director are to manage the company's business and exercise all the powers of the company.
Directors exercise their powers on behalf of the company and are directly responsible to the shareholders (or, in a company limited by guarantee, to its members). They must promote the success of the company, even if they are appointed to represent a specific shareholder (such as a venture capital fund).
Specific powers and rules for company directors are set out in the company's memorandum and articles of association. Directors may make any decisions necessary to run the company provided they do not infringe the memorandum and articles of association or the Companies Act.
The appointment of directors is normally formalised in a service contract and the company is also required to notify the registrar at Companies House within 14 days of the appointment.
Who can be a director?
There is no requirement for a director to be a shareholder of the company, but in small private companies it is usual for the major shareholders of the company to be appointed as directors too. It is possible to be a director of more than one company, although it is important to avoid any potential conflict of interest.
The Companies Act stipulates that all companies must have at least one 'natural person' (ie an individual) as a director, not just another company acting as a director.
A person who is an undischarged bankrupt or who has been disqualified for 'unfit conduct' cannot be a director. There is no maximum age limit, but directors must be aged 16 or over.
Compliance responsibilities of a director
Company directors are legally responsible for ensuring that the company meets all its legal reporting obligations.
Companies' reporting obligations include:
Preparing financial statements.
Maintaining statutory books and registers including a PSC (people with significant control) Register.
Updating registers every time any circumstances change and informing Companies House of the changes.
Filing an annual confirmation statement (which has replaced the annual return) with Companies House.
Keeping accounting records.
Directors are responsible for the submission of statutory documents to Companies House and must provide notice of changes in the company's structure, PSCs and board of directors. In particular, they are held personally responsible for the submission of accounts, with late filing resulting in a fine. They are also responsible for ensuring that the correct amount of tax, National Insurance and VAT is paid, and that it is paid on time.
Directors may also be held responsible if the company does not comply with business regulations relating to matters such as employment, health and safety, the environment and discrimination. Directors should ensure that company employees act within the law.
Liability and enforcement action
If a director breaches their duties, they may face legal claims or enforcement action.
Directors have unlimited liability for fraud or negligence. Directors can take out insurance cover to protect themselves against liability to the company, shareholders and third parties if a claim of negligence is brought against them.
Personal liability insurance is widely used by directors to protect their personal assets and to cover the cost of their defence. Policies typically cover directors and senior managers and, depending on the policy, can extend to protect other employees too.
Contact Ashored for help and support managing your company and fulfilling your Directors responsibilities.