What being a director really involves

Congratulations, you’re a director of a company and your name is registered for all to see on Companies House! However, with this newfound fame comes responsibility and it’s important to understand what being a director really involves. 

At Future Cloud, we often speak to new directors who are surprised by the amount of legal responsibility and compliance that comes with the title. In this blog, we’ll break down exactly what being a director involves and the key duties you must fulfil to stay on the right side of the law. 

In a company, there might be several directors who each take responsibility for different areas of the business, such as financial management, marketing, or operations. However, all directors registered at Companies House are legally responsible for running the company and making sure information is sent to Companies House on time. 

Let’s look at some examples:

This is an annual submission to Companies House to confirm the details of the Company are still correct. It includes: 

• Names and details of directors and shareholders 
• Shareholdings and structure 
• Company addresses 
• SIC codes (business activity classification) 

This is an annual submission to Companies House to show the financial results of the company. The format varies depending on the accounting standards and size of the company. Small companies don’t currently need to publish a profit and loss account. You also must submit corporation tax return to HMRC and attach full accounts with profit and loss to those. 

If you file your accounts late, there are late filing penalty fees to pay Companies House. These start at £150 for the accounts being up to a month late. It then increases to £1,500 for filing more than 6 months late. If accounts are filed late in 2 successive financial years, the penalties are also doubled.

There is no penalty for filing your confirmation statement late. But, your company could be struck off if it isn’t filed which can cause major issues. 

Company directors are responsible for registering a change of address for their registered office, residential address or service address.  

The registered office of a company is the official address of the company registered with Companies House. Government bodies may send post to this address, so it is important that it is kept up to date. Many companies without a physical office use a registered office service so that they have an official address and then any post will be forwarded to them from there. Registered Office addresses are shown on the public register so many people don’t wish to use their home address for this reason. 

Directors are responsible for keeping the PSC register up to date. This register must include details of anyone who: 

• Owns more than 25% of shares or voting rights 
• Can appoint/remove the majority of directors 
• Has significant influence or control over the company 

You still need to make a declaration if there are no people with significant control.  

Directors are personally responsible for keeping the company’s records up to date, even if they ask someone to do it for them, such as an accountant. Most accountants will offer registered office service and submit confirmation statements for companies, as well as being able to submit the accounts. 

In addition to all of this, there are also certain responsibilities that directors have which lots of people aren’t aware of. 

You must follow rules that are written in the company’s articles of association. These cover things like how decisions are made by the directors and shareholders and how dividends are declared. Most companies follow the model articles of association, but lots don’t. You can find the model articles by googling model articles of association. 

As a director you must also promote the best interests of the company and perform to the best of your ability.  

• You must act in the company’s best interests to promote its success.  
• You must consider the consequences of any decisions, including the long-term consequences.  
• You must consider the interests of the company’s employees and the need to support business relationships with suppliers, customers and others. 
• You must consider the impact of the company’s operations on the community and the environment and maintain the company’s reputation for high standards of business conduct. 
• You must also act fairly to all members of the company and avoid situations where loyalty may be divided, including accepting benefits that could cause a conflict of interest.  
• You must remember to exercise independent judgement and do not allow others to control your influence as a director, let other directors know if you might personally benefit from a transaction made in the name of the company. 
• You also can’t misuse the company’s property and must apply confidentiality about the company’s affairs. 

If the company becomes insolvent, your responsibilities as director will apply towards the creditors, instead of the company. A creditor is anyone owed money by the company. 

Directors need to be aware that as soon as the company is no longer viable, they need to get advice from an insolvency practitioner to avoid wrongful trading. 

This is where the directors knew there was no reasonable prospect of the company avoiding insolvency, but they carried on trading anyway. In this instance, the directors could become personally liable for all losses to creditors. The director could also be disqualified from acting as a company director for a certain period or even fined or imprisoned. 

I hope this blog has helped you understand the responsibilities that come with being the director of a limited company, and how there’s more than meets the eye than a fancy title!  

It’s brilliant to be able to make those decisions and run a company but it’s also important to be aware of the responsibilities before taking on the job.  

Need help managing your responsibilities as a director? Get in touch today to speak with one of our experienced accountants. 

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