General
Business
Directors’
Responsibilities
The
position of director bestows a certain status upon an individual.
Whether you are appointed to the Board of the company you
work for or you are involved in establishing a new business
and take on the role of director you will feel a sense of
achievement.
However the office of director should not be accepted lightly.
It carries with it a number of duties and responsibilities.
We summarise these complex provisions below.
Please come and talk to us if you would like more information.
Companies
You
can undertake business in the UK as either:
- an
unincorporated entity, ie a sole trader or a partnership
or
- an
incorporated body.
An
incorporated business is normally referred to as a company.
Although there are limited liability partnerships and unlimited
companies the vast majority of companies are limited by shares.
This means the liability of shareholders is limited to the
amount unpaid (if any) on their shares.
A limited company can be a private or public company. A public
company must include 'public' or 'plc' in its name and can
offer shares to the public.
The responsibilities and penalties are more onerous if you
are a director of a public company.
A company has a 'memorandum', and 'articles' which
constitute its rules and will contain specific regulations
regarding the duties and responsibilities of the directors.
Directors
When
you are appointed a director of a company you become an officer
with extensive legal responsibilities. You are normally appointed
by the Board and the appointment is confirmed by the shareholders.
You can usually resign as a director at any time, but can
only be removed by the shareholders.
The rules of the company may vary these procedures.
|
There
are two separate types of responsibility:
- common
law - here decided legal cases have established
that your position as director is similar to that
of a trustee and an agent
- statute
- here company law imposes a large number of duties
upon you.
|
Common
Law Duties
Fiduciary
duty
|
As
a director you should:
- act
in good faith
- act
in the best interests of the company
- avoid
conflict between personal and company interests
- not
make any personal gain from opportunities which arise
by virtue of your position.
|
The
law recognises that your position as director is similar to
that of a trustee; ie the shareholders have 'entrusted' the
company assets to you and you must act in their best interests.
Skill and care
The courts have established that you must exercise due skill
and care when acting as a director. Although this is a subjective
matter you cannot accept appointment as a director and then
do nothing.
Breach of duty
Failure to fulfil these duties can result in an action by
the company against you for damages. As many private companies
are owned by their directors such actions are rare in these
circumstances.
Indemnity insurance is available if you consider it necessary.
Statutory
Duties
Accounting
Directors of a company are required by law to produce accounts.
The law specifically covers the following matters:
- Accounting
records
Proper records must be maintained as defined by the Companies
Act.
- Accounts
You are required to prepare accounts for each year to a
date which is registered at Companies House. The accounts
must give a true and fair view and must comply with the
form and content prescribed in the Companies Act.
A copy of the accounts must be provided to each shareholder.
- Filing
The accounts must be filed at Companies House within a specific
period after the year end. Failure to meet this deadline
will result in automatic penalties on the company.
Very large companies must file their full accounts but others
can file an abbreviated version.
- Audit
Larger companies are required to have an audit. This confirms
that the accounts give a true and fair view. Smaller companies
are exempt from the audit requirement.
The
above requirements are complex and professional advice will
be required to ensure compliance. Please talk to us for further
information or the current size criteria.
Administration
Company law establishes a number of administrative requirements
which you must comply with. These include:
- maintaining
statutory registers of shareholders, directors etc
- keeping
minute books
- holding
meetings
- conducting
business by passing resolutions in the correct manner.
|
In
addition the law reinforces the fiduciary position of
a director by including specific legislation relating
to transactions between a company and its directors.
These rules cover:
- prohibiting
loans to directors
- restricting
other credit to directors
- disclosing
details of loans and other transactions in which a
director has an interest in the accounts.
These
rules are complex and in many cases extend to persons
connected with a director.
|
The
Companies Act contains a large number of penalties which can
be levied against directors if they fail to comply with their
statutory duties. These vary from a modest fine to imprisonment.
Financial
Difficulties
If
your company should get into financial difficulties there
are a number of ways in which you could face liability as
a director.
Fraudulent trading
This is committed when a company intentionally defrauds its
creditors. However few actions are successful because dishonest
intent must be proved.
Wrongful trading
When a company is in insolvent liquidation the courts can
require a contribution from any directors found guilty of
wrongful trading. To avoid liability directors must show that
from the moment insolvency became inevitable they took all
possible steps to minimise the loss to the creditors.
The law relating to companies in difficulty should not be
underestimated. Expert insolvency advice should be sought
sooner rather than later.
How
We Can Help
You
will now be aware that the position of director must not be
accepted lightly.
- The
law is designed to penalise those who act irresponsibly
or incompetently.
- A
director who acts honestly and conscientiously should have
nothing to fear.
We
can provide the professional advice you need to ensure you
are in the latter category.
Call us to discuss these matters in more detail.
Top
of page
For information of users: This material is published
for the information of clients. It provides only an overview
of the regulations in force at the date of publication, and
no action should be taken without consulting the detailed
legislation or seeking professional advice. Therefore no responsibility
for loss occasioned by any person acting or refraining from
action as a result of the material can be accepted by the
authors or the firm.
|
C o m p l e t
e 
Regulated
to carry on audit work for a range of investment business
activities by the Institute of Chartered Accountants in England
and Wales