In order to keep this brief, we’re going to call this the top 5 need-to-know things about being a company director. If you need the full spiel, then feel free to reach out:
The Top 5 Need to Knows About Being a Company Director
1 – Day to Day Responsibility to Run the Company
A company director is responsible for running the business day-to-day and making sure the standard company filings take place (e.g. your Confirmation Statement each year which says who holds shares in the Company).
2 – Directors v Shareholders
Directors and Shareholders are not the same thing. You can be both, but you can also be one without being the other. Shareholders own a share of the company. Directors might just be paid a salary to run the company (e.g. a CEO might be appointed to run the company, but might not own it – although they may have been granted share options to sweeten the deal).
3 – Legal Duties of Directors of All Companies
As a Director, you have legal duties to keep to as listed below, which if summarised effectively mean you have to act honestly and with integrity for the business – you can’t be underhanded in any way, take money from the company, or do anything which might harm the company:
- To act within the powers granted to them in the articles of association.
- To promote the success of the business.
- To exercise independent judgement in all decision-making.
- To use reasonable care, skill and diligence at all times.
- To avoid or declare any conflict of interest.
- To avoid the acceptance of benefits from third parties or using their position to make private profits.
- To declare an interest in a proposed transaction or arrangement with the company before it enters into such a transaction.
4 – Consequences of Failing to Follow Duties
If you don’t follow the duties in point 3, then you can be banned as a director for up to 12 years – i.e. there are consequences to being dishonest or acting in bad faith and if ever in doubt, you should be cautious rather than reckless. Seek legal or other advice if unsure on something. Importantly: if your company is in financial difficulty, then your duty to act in the best interests of your company, can switch to being a duty to acting in the best interests of your creditors (i.e. the people or organisations you owe money to).If you are in a situation where you think you might be approaching insolvency or going out of business, it is your duty as a director to start to take precautions to protect the assets of the business – e.g. if your company was in financial trouble, you would then potentially be committing fraud if you decided to suddenly pay yourself a lump sum out of the company right before the company goes out of business.
5 – Director To-Do Lists
The directors need to make sure the company administration is taken care of – for example:
- Maintaining the company’s registered details and reporting changes to Companies House and HMRC
- Keeping accurate accounting records.
- Monitoring the financial position of the company.
- Taking all reasonable steps to minimise losses if the company is facing financial difficulty.
- Filing annual accounts, an annual confirmation statement (previous the annual return), and Company Tax Returns by the given deadlines.
- Paying corporation tax and any other tax liabilities by the given deadlines.
- Arranging periodic board of director meetings (e.g. once every 2 or 3 months) and general meetings of shareholders (at least once a year).
- Filing copies of resolutions with Companies House.
- Taking legal and accounting advice where required.
- Issuing and/or transferring shares.
- Complying with employment law if the company has employees.
- Responsible for health and safety of all employees.
Which other points just missed out on the top 5?
- Directors must be at least 16
- You don’t need to have a company secretary – not compulsory
- You need a minimum of 1 – you appoint the directors when registering the company.
- You can resign as a director using a TM01 form and submitting it to Companies House.
- You can appoint a director using an AP01 form and submitting it to Companies House (although it is possible to be a ‘shadow’ director who acts as a director in every way but just isn’t formally appointed as one on Companies House.
- Non-executive directors – they are still directors and have all the same duties – but are not day-to-day company ‘executives’. Usually, a non-executive director (e.g. an investor sitting on your board of directors) will request that you obtain Directors and Officers Insurance to protect them from liability because they don’t have the same.
Any more questions? Let us know.
With great power comes great responsibility – or something like that! Being a ‘director’ isn’t just a title. However, it is a great way to experience a business inside out and all co-founders should also be directors unless there is a good reason for them not to be.
This Basic Training article was written by Legal Sidekick. Legal Sidekick is the legal platform for startups. We offer automated contracts and loads of startup legal resources and guides. For queries on being a company director or generally, contact us directly.