Whilst there are no formal qualifications or experience required to be a company director there are certain persons who cannot act in that capacity, namely people aged under 16, bankrupts, disqualified persons and any person acting as an auditor of the company in question.
General Director’s duties
The Institute of Chartered Accountants in England and Wales identifies the following general duties:
- To comply with the company’s constitution
- To act in good faith to promote the success of the company for the benefit of the members as a whole
- To have independent judgment that does not conflict with them being able to rely on advice
- To exercise reasonable care, diligence and skill
- To not have conflicts between company and directors interests
- Not to accept benefits or other financial inducements from parties the company transacts business with, without full disclosure to the company
- To declare all interests that he may or may not benefit from in company transactions
- To run the company with the intention of making a profit and to protect creditors’ interests
Directors must also:
- Keep proper company records, financial and statutory, and advise HM Revenue and Customs and Companies House of changes
- Where a company requires an audit, ensure that the accounts show a “true and fair view” of the business’ finance
- File an Annual Return with Companies House
- File a Corporation Tax Return and pay the required corporation tax to HMRC
- Register for Self Assessment and submit a personal Self Assessment Tax Return each year
- Ensure the company registers for VAT if it exceeds the required threshold
You can take advice and hire other people, such as accountants, to do this work but as a company director you have the ultimate responsibility yourself!
Ensure trading is legal
- Ensure that the company is allowed to conduct trade in its area of business and has all relevant permissions and permits
- With increased regulations, if the company is active in a regulated area (normally banks, financial advisors, legal and company formation services, directors must also appoint an Anti Money Laundering Officer to undertake the required checks
The Institute of Directors highlights even more obligations:
- Determining the company’s strategic objectives and policies
- Monitoring progress to achieving the above objectives
- Recruiting senior management
- Reporting to interested parties, particularly shareholders, the company’s activities and performance
- Likely consequences of any decision into the short and long term
- Interests of shareholders, management and employees
- Business relationships with suppliers, customers, advisors, bankers and the wider community
- Impact on the wider community
- Maintain ethical practices
Articles of Association
Many of the duties, responsibilities and powers of directors can be found in the company’s Articles of Association which defines the relationship between the company and its directors and shareholders. Most companies are incorporated with standard Articles, but often there is a need to tweak them, for example in adopting certain procedures if shareholders want to sell their shares. Most large reputable Company Formation Agents have hundreds of precedents, which are tried and tested formats, designed to cater for the specific requirements of a particular company. Moreover, if there is a need for a more detailed and specific wording covering a particular eventuality, the larger formation agent usually has a company secretarial department who draft individual wording as required.
These are numerous and sometimes overwhelming! They range from wrongful and fraudulent trading embodied in the Insolvency Act 1986 to ensuring workers have a safe environment, Health and safety at Work etc Act 1974, to where the company’s activities result in death under the Corporate Manslaughter and Corporate Homicide Act 2007. Penalties vary according to the “crime” starting from simple fines to disqualification to act as director for a certain time period to imprisonment.
So be legal, be careful, be entrepreneurial and be profitable…and most of all enjoy the ride!