When you become a company director you take on a whole new set of responsibilities. Directors are effectively the agents of the company, appointed by the shareholders to manage its day-to-day affairs. Along with your fellow board members you will set out the strategy of your business, and as a director, you’re legally responsible for running the business and ensuring that the company meets its statutory obligations. In this blog, we outline the key duties and business director responsibilities, as well as what to do should your company become insolvent.
According to government guidance, directors’ main responsibilities include making sure the following information is kept up to date and sent to Companies House on time:
- The confirmation statement
- The annual accounts
- Any change in your company’s officers or their personal details
- A change to your company’s registered office
- Allotment of shares
- Registration of charges (mortgages)
Whilst you can hire other people to manage some of these things day-to-day (for example, an accountant), you’re still legally responsible for your company’s records, accounts and performance.
Seven directors’ duties
As a director, you must perform a set of seven duties under the Companies Act 2006:
1. Follow the company’s constitution
Directors must follow the company’s constitution and its articles of association. These are written rules about running the company that are agreed by the members, directors and the company secretary which will also set out what powers you’re granted as a director and the purpose of those powers.
2. Promote the success of the company
As part of your business director responsibilities, you must also act in the company’s best interests to promote its success. In order to do so, you should consider the consequences of all decisions and the interests of the employees. You should also support business relationships with suppliers and customers, consider the impact of the company’s operations on the community and the environment and ensure you act fairly to all members of the company. Finally, you also should be sure to maintain the company’s reputation for high standards of business conduct.
Of course, if the company becomes insolvent, your focus should shift and you should act in the best interest of your creditors - but we discuss that in more detail below!
3. Use your own independent judgement
As a company director, you must not allow other people to control your powers. You can accept advice, but when all is said and done, it’s important to use your own judgement to make final decisions.
4. Exercise reasonable care, skill and diligence
Another important responsibility as a director is to always perform to the best of your abilities and exercise reasonable care, skill and diligence. You must also use any relevant knowledge, skills or experience you have to help you do this - and the more experienced you are, the more will be expected of you.
5. Avoid conflicts of interest
As a director, you should avoid any situations where your loyalties might be divided. This includes telling other directors about any possible conflict of interest, and following the company processes accordingly. This also applies if you are no longer a director; you cannot take advantage of any information, property or opportunity that you became aware of as a director.
6. Don’t accept third party benefits
Another important duty is to not accept any benefits from a third party that are offered to you because you’re a director as this could cause a conflict of interest.
7. Be transparent on interests in a transaction
Finally, you must tell other directors if you might personally benefit from any transaction the company makes. A good example of this is if the company plans to enter a contract with a business that is owned by someone in your family.
In addition to these seven duties, there are further day-to-day duties that you must perform as a company director as well. These include keeping records and reporting changes as well as filing accounts and tax returns:
As a company director, you must keep records about the company such as information on directors, shareholders and company secretaries as well as the results of any shareholder votes and resolutions. Additionally, you should keep records of any promises for the company to repay loans at a specific date in the future and who these loans must be paid back to, and you should also keep record of any promises the company makes for payments if something goes wrong and it’s the company’s fault.
It’s also essential to keep records on transactions when someone buys shares in the company and any loans or mortgages secured against the company’s assets. Keeping clear financial records can really help if your business should run into financial difficulty at any point as it can help shorten the duration of any potential investigations and also make your insolvency practitioner’s life easier - thus helping you to solve any and problems as quickly as possible.
Your directors’ responsibilities also include reporting any changes to Companies House and/or HMRC. This includes changing your company’s registered office address, if your business’ contact details change and if you appoint an accountant or tax adviser. In addition, you must tell Companies House within 14 days if you make changes to:
- The address where you keep your records and which records you keep there
- Directors or their personal details, like their address
- People with significant control or their personal details
- Appointing any new company secretaries
You must also tell Companies House within a month if you issue more shares in your company.
Your accounting records should include all money received and spent by the company and the details of any assets owned by the company. You will also need to keep record of the debts the company owes or is owed, the stock the company owns at the end of the financial year, the stocktaking method used to calculate this, and you should also record the goods bought and sold.
Annual accounts and tax returns
Finally, as a company director, you must keep a record of all other information and calculations needed so you can prepare and file your annual accounts and Company Tax Return. This includes all money spent by the company, all money received by the company, and any other relevant documents such as bank statements and correspondence.
What if my company is insolvent?
If your company becomes insolvent, your responsibilities will change and you will need to act in the best interests of your creditors rather than the best interests of the company. You will need to take every action possible to limit your creditors’ losses whilst also avoiding wrongful trading or fraudulent trading claims - or even potential disqualification which could prevent you from holding a director position for up to 15 years.
In order to make the best decisions and ensure a desirable outcome, it’s really important to seek advice from an expert insolvency practitioner as soon as possible. If your company enters into a formal insolvency procedure such as administration or liquidation, a company investigation will be launched to discover the cause of the insolvency. For more tips for directors of insolvent companies, read this blog.
How McAlister & Co can help
If you are unsure of your business director responsibilities and need further advice, or if your business is currently facing financial difficulty and you don’t know where to turn, contact McAlister & Co today. As Licensed Insolvency Practitioners, we provide advice on business insolvency to Directors, Sole Traders and Partnerships - and the sooner you reach out and ask for help, the more options you will have available to you.
There’s no need to face financial difficulty alone - call us now for FREE initial advice.