Enfield  0208 804 0478

Woking  01483 797901

W Accountancy Fact Sheets -   Director's Responsibility

Company directors are responsible for the management of their companies. But they act on behalf of the owners, and must consider their interests in everything they do. They also have responsibilities to the company’s employees, its trading partners and the state.

Appointing directors

Every private limited company must have at least one Company director. The appointment (or departure) of a director or directors must be reported to Companies House within 14 days.

You must pursue the objectives listed in the Memorandum of Association and act within the powers granted in the Articles of Association. For example, powers to acquire similar businesses, to take shares in other companies, to borrow money or to sell the undertaking or part of its property, how new directors are to be appointed, and how many directors are required to provide a quorum.

In exercising directors’ powers, you are required to exhibit ‘such a degree of skill as may reasonably be expected’ from a person with your knowledge and experience. You must also exercise a degree of care in your actions as a director.

The test of an acceptable level of care is what a reasonable man would do in looking after his own affairs. You are generally not liable for the actions of your fellow directors, if you knew nothing about them and took no part in them, though it is dangerous to turn a blind eye.

The company is a separate legal entity from its directors, shareholders and employees. The best interests of the company are not always the same as the best interest of the shareholders.

For example, it might be in the interests of the shareholders for the directors to declare a large dividend. But if the company faced a cash shortage, this would conflict with the interests of the company. You must also consider the interests of other stakeholders, such as creditors and employees.

You will be guilty of wrongful (or, perhaps, even fraudulent) trading if you allow the business to carry on, and incur debts, when you know or should know there is no reasonable prospect that the company will be able to repay them.

The fact that the company is making losses does not in itself mean that the company is trading wrongfully.  But if there is no reasonable prospect that it will move into profit, and doubts about whether its assets will cover its liabilities or whether it can pay its debts when they fall due, the company is probably trading wrongfully.

As a director, you could be personally liable for the company’s debts if you knew (or should have known) there was no reasonable prospect it could have repaid them.

As a director, you are personally responsible for ensuring that the company complies with company law.

These duties are usually delegated to the company secretary, but you must ensure that they are carried out.

You must make sure that the statutory returns are filed with the Registrar of Companies on time.

These include the annual report, and accounts, the annual return and notice of changes to director and secretaries. Failure to deliver can result in fines, for which the director may be personally liable, or disqualification as a director or even a criminal conviction.

Small companies with a turnover of less than £1 million do not need a full audit, though they still need a report from a qualified accountant. Abbreviated accounts should be filed with Companies House and full financial statements must be prepared and sent to the shareholders.

You must comply with employment law in dealings with employees. You can be sued for unfair dismissal, racial or sexual discrimination, or unfair work practices.

You must take reasonable care to ensure the health and safety of your employees.

You must ensure that the correct amounts of tax, VAT and National Insurance (NI) are paid on time and watch out for legal pitfalls including data protection, libel and defamation, and the provision of misleading information.