We’ve provided a no-nonsense article to assist new directors in understanding their responsibilities and position within a limited company. For more information on starting and running a limited company, check out all of our relevant articles.
What is a director of a limited company?
There’s a clear distinction between a company director, who is employed by the company, and a shareholder, who actually owns part of the company based on the amount of shares they hold. Many directors are also shareholders and, in a personal service company (PSC), they are usually the sole director and shareholder.
A limited company is a legal entity with its own constitution and articles of association. These are written rules about running a company. They specify the powers you’re granted as a director and the purpose of those powers.
As a director, you must always act in the best interests of the company. Companies House describes this as ‘promoting the success of the company’.
Who can be a company director?
There are no formal qualifications or special skills that are required to become a company director. Actually, there are very few restrictions at all. A director must be at least 16 years old, have no history of bankruptcy and can’t be prohibited (disqualified) by a court order from being a company director. In special circumstances, a court can allow a previously bankrupt or disqualified person to become a director.
While there’s no mandatory qualification, a director must be able to perform the duties shown below.
What are a director’s statutory duties?
The statutory duties and responsibilities of a company director are set out in the Companies Act 2006, the company’s articles of association, and any service contract that’s put in place between a director and the company. The Companies Act 2006 provides the statutory regime for directors’ duties, which consists of seven requirements a company director must meet. In accordance with the Companies Act, you must:
- act only in accordance with the powers included in the company’s constitution and articles of association.
- make decisions for the benefit of the company and not yourself. This means ‘promoting its success’ at all times. This may seem confusing if you’re the sole shareholder, employee and director, but a decision that may benefit you personally may not be in the best interests of the company.
- exercise independent judgement in all decision-making.
- exercise reasonable care, skill, and diligence, as expected of someone in your position.
- avoid or declare any conflict of interest.
- avoid the acceptance of benefits from third parties or using their position to make private profits.
- declare an interest in a proposed transaction or arrangement with the company before it enters into such a transaction.
What are the day to day management duties of a director?
The day-to-day management of a company is delegated to the directors by its shareholders. The company may employ people to help carry out these tasks, such as a company secretary, accountant, or tax specialist.
First of all, we need to explain some of the terms you’ll come across as a company director that you may not be familiar with: the ‘Accounting Reference Date’ and ‘Accounting Period’ These are important because Companies House and HMRC set the dates for filing information in different ways.
Companies House gives your company an “Accounting Reference Date” when it is first incorporated (set up). The first Accounting Reference Date is the last day of the month in which the first anniversary of incorporation falls.
This means that the Accounting Reference Date for the first set of Company Accounts you file will often have a period longer than 12 months. For example, if your company incorporated on the 7th of January 2020, your Accounting Reference Date would usually be the 31st of January 2021.
For your Company Tax Return and payment of Corporation Tax, you’re given an “Accounting Period” by HMRC which begins when you start trading and usually ends on your Accounting Reference Date.
The following list is not exhaustive, but your responsibilities include duties such as:
- ensuring the company is registered for and pays its taxes. There are a number of taxes your company may need to pay and also file the associated returns for. These are all covered in our Knowledge article on filing deadlines, but they include Corporation Tax, VAT if your company is registered, and regular returns for any employee or director payroll. These must be submitted correctly to HMRC and Companies House, and outstanding amounts paid within statutory deadlines. Ultimately, the director of a company is legally responsible for ensuring returns are submitted and taxes paid on time.
- submitting an annual Confirmation Statement to Companies House. Not to be confused with your annual accounts, the Confirmation Statement is, in fact, a completely separate filing requirement. It provides a snapshot of company information to be filed initially within 12 months and 28 days of the company’s formation, and then each year thereafter. It also contains information about ‘Persons of Significant Control’ involved with your business.
- filing the company’s annual financial statements with Companies House within nine months of the company’s accounting period ending
- paying Corporation Tax due on the company’s profits to HMRC within nine months and one day of the accounting period ending
- filing the company’s annual financial statements and Corporation Tax return (CT600) with HMRC within 12 months of the company’s accounting period ending. You need to file a return regardless of whether the company makes a profit or loss.
- You may also need to file an Employment Related Securities return if your company provides (or transfers) shares to employees or directors. You’ll need to submit information about these changes on an Employee Related Shares (ERS) return to HMRC.
We’ve got a detailed article on everything you need to prepare and file as part of your company Year End. At Crunch, our easy-to-use online accounting software, helpful client managers and expert accountants will ensure that you stay on top of all of this, producing the relevant filings and submitting them to HMRC or Companies House. Take a look at our limited company accountancy packages to see how we make managing your business finances a breeze.
Consequences of breach of directors' responsibilities
Directors are subject to a variety of sanctions for breach of their duties.
The limited liability afforded to a limited company applies only to its shareholders and not its directors. Directors may be personally liable where they fail to meet their statutory responsibilities under company law or provide misleading financial reports and accounts.
Breach of company law may be a criminal offence. For instance, breach of the Companies Act 2006 requirements on corporate administration (e.g. keeping company records and making statutory filings) may constitute an offence for which the company and every director in default may be liable. Generally, you need to keep company records for at least six years. We explain the records you need to keep in our Knowledge article.
Directors and other officers may also be liable to fines under other legislation to which the company is subject, for instance, employment law or data protection laws. We’ve got an article listing all the main fines and penalties you’ll want to avoid.
Where breaches are serious, a court may disqualify a person from being a director of a company or in any way concerned with its management. The possible grounds for disqualification are wide, including persistent breach of company law (e.g. to make statutory filings), fraudulent trading, or where the company has become insolvent, that the director is unfit to be concerned in the management of a company.
Important filing dates
Crunch makes it easy to stay on top of everything
So there you have it, being a limited company director comes with a lot of responsibility. However, there are many advantages to running your business as a limited company as well, not least the ability to be more tax-efficient.
If it seems like a lot of work, don’t worry, we’re here to help. Crunch has been helping set up and run limited companies for over 10 years now, and our fantastic combination of easy-to-use online accounting software, expert chartered certified accountants, and superhero client managers provide all the help and advice you need to manage your limited company and keep on top of your director’s responsibilities.
Find out more about our accounting for limited companies service, and take a look at our additional guides on understanding the HMRC requirements as a company director and determining how much to pay yourself as a company director online now.