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Whilst shareholders are the owners of Limited Companies the job of running
them rests with the directors and they must do so for the benefit of the
shareholders whilst ensuring compliance with the law.
Directors can be liable to penalties if information is not sent to Companies
House on time. They must approve the annual accounts and are also responsible
for all the general day to day running of the company including matters such as
health and safety. Acting improperly can lead to fines, disqualification from
being a director, personal liability for the company's debts or a criminal
Appointment of Directors
Appointment of new directors, resignation of directors and change of
directors details needs to be notified to Companies House on forms 288a, 288b
and 288c respectively within 14 days.
Private limited companies must have at least one director and public limited
companies must have at least two. In general anyone can be a director, but from
1 October 2008 all directors will have to be aged at least 16. A director must
also not disqualified by the court from acting as a director and must not be an
undischarged bankrupt - if you are, you need the court's permission.
The Articles of Association set out the rules for how the company is to be
run including for example how many directors there should be, how long they can
serve and what happens at the end of their term.
Directors' powers and financial liabilities
The powers of the directors are limited by the company's Memorandum and
Articles of Association, although these are usually very widely drawn. These can
for example restrict the type of business activities allowed or monies that can
borrowed, so it is important to check them.
A director is expected to have the skill expected that a reasonable person
would do looking after their own business and act in good faith for the company
and treat all shareholders equally. From 1 October 2007 the Companies Act 2006
imposes a new statutory set of directors duties which are:
- A duty to act within powers - not to abuse or exceed their powers (usually
as defined by the Articles) or use them for an improper purpose;
- A duty to act as the director considers will promote the success of the
company for the benefit of its members as a whole, having regard (amongst
other things) to:
- the likely long term consequences
- employees’ interests
- business relations with suppliers, customers and others
- impact on the community and the environment
- desirability of a reputation for high standards of business conduct
- need to act fairly as between members
- This duty is made subject to any requirement to act in the interests of
creditors (e.g. where the company is insolvent and wrongful trading might
- A duty to exercise independent judgement
- A duty to exercise reasonable care, skill and diligence (this introduces a
minimum standard of competence)
- A duty to avoid conflicts of interest – but conflicts can be authorised by
the board (so long as there are enough "independent" directors)
- A duty not to accept benefits from third parties – they can still only be
approved by the shareholders
- A duty to declare to other directors any interest in a proposed
transaction or arrangement –a "general" notice can be provided at a board
meeting dealing with ongoing transactions with a particular company.
Other responsibilities of Directors
Apart from Companies House responsibilities directors are also responsible
for the general running of the company such as complying with employment law,
health and safety law, tax law, etc.
Failure to carry out some of these duties, such as where health and safety is
concerned, can result in a criminal conviction.
Filing Documents at Companies House
Directors are responsible for filing documents at Companies House, even
though such tasks may be delegated to the Company Secretary...
- Late filing of accounts leads to an automatic civil penalty, in the range
of £100 to £1,000 for a private company, and £500 to £5,000 for a public
company. Failing to file accounts or the annual return on time, or not at all,
is also a criminal offence. If you are prosecuted and convicted you could end
up with a criminal record and a fine of up to £5,000. You may also be
disqualified from acting as a director.
- The Directors also need to check and return the annual return which is the
information that Companies House holds on the directors, shareholders and so
- Ensure the company produces and files an annual report and accounts. A
director must sign the balance sheet and the board must also approve and sign
off the directors' report. If required by law, an audit of the accounts must
also take place.
- Advise Companies House if there is a change your registered office
address, using form 287.
- Advise of changes of directors and Company Secretary.
Disqualification of Directors
Directors can be disqualified for any of the following...
- allowing the company to trade while insolvent;
- not keeping proper accounting records;
- failing to prepare and file accounts
- not sending returns to Companies House;
- failing to send tax returns and pay tax
In some cases, the directors can face criminal charges, fines or be made
personally liable for the company's debts. Disqualification proceedings are
handled by the courts and disqualification can be for between two and 15 years.
While disqualified, you must not: be a director of any company nor act like a
director - even without being formally appointed influence the running of a
company through the directors be involved in the formation of a new company
ignoring a disqualification order is a criminal offence. For that you could be
fined and sent to prison for up to two years.
Even if you haven't been appointed as a director, you could possibly be a
shadow director if the other directors are 'accustomed to act' under your
instructions. This can also happen if you resign as a director but continue
making decisions and giving instructions. In this case you would have the same
responsibilities and potential penalties as if you were a director.
Failure to properly comply with director responsibilities can lead to the
- You can be personally liable for illegal acts such as those beyond your
- You can be liable for company debts incurred through fraudulent or
wrongful trading. Wrongful (or even fraudulent) trading occurs when you allow
the business to carry on and run up debts when you know or should know there
is no reasonable prospect of the company being able to repay them. Just
because you are making losses does not necessarily mean it is wrongful trading
but all circumstances need consideration.
- If as a director you disagree with the decisions made by the board as
whole you should ensure this is noted as you can still be joint and severally
liable for decisions taken as a collective.
About the Author
Jonathan Amponsah BSc FCCA is a UK Tax Expert and the founding partner of
A M P Associates –
A specialist firm of chartered certified accountants and tax advisers based in
London and Surrey. Jonathan advises on a wide range of business and tax issues
and he is recognized for his proactive and innovative approach to taxation.
Jonathan can be contacted on 0845 009 8845 or email:email@example.com
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Article Published/Sorted/Amended on Scopulus 2008-05-09 00:33:55 in Business Articles