Running a business as a new entrepreneur likely means you’ll have to wear lots of hats: managing your accounting, advertising, sales and business development all in one. As a limited company director, there are additional responsibilities you need to keep in mind.
Find out what directors do in limited companies in this article and make sure you’re sticking to the rules you need to. Discover:
- What does a director do in a company?
- The seven duties of a successful company director
- How can a company secretary help?
- What happens if you don’t follow the rules?
- How to keep your company tax compliant
If you’re further ahead in planning your business and are ready to register it with Companies House, read our article How to register a limited company.
What does a director do in a company?
A director is a person who runs limited companies on behalf of shareholders. While limited companies can have more than one director and shareholder, you’ll likely be the only one if you’re starting out.
As the company’s director, you’re legally responsible for the company’s records, financial accounts and business performance. Below we discuss the seven legal duties outlined by Companies House that you’ll need to follow in order to fulfil this responsibility.
The seven duties of a successful company director
- Company’s constitution
Company directors need to follow the company’s constitution and articles of association. These documents are registered with Companies House as a company is registered and declare how it’s to be run. Therefore, you need to stick to them in order for them to be meaningful.
Specifically, directors need to be aware of what they don’t have authority to do (as specified in the company’s constitution and articles of association). This is because you may have to compensate the company for any losses from where you’ve overstepped your bounds.
- Promote the success of the company
Directors must also act in the company’s best interests, promoting its success and sustainability for the future. As you’re making decisions, make sure to consider the business as a whole, including:
- Short and long-term consequences on the business, your community and the environment
- The need to support existing business relationships with suppliers and customers
- The company’s reputation for how it treats people it interacts with
- The need to act fairly to all members of the company all every level (including employees)
As you’re starting out, the size of what you’ll need to consider will obviously be small: you may only have a small client base, you as the sole employee and a small office space. However, as your business grows to have more clients, staff, assets and shareholders, you will need to be mindful of this growth across time: making more informed decisions and taking a broader perspective each time. Note that, if the company becomes insolvent, your responsibilities as director change and apply instead to the people the company owes money to.
- Exercise reasonable care, skill and diligence
When running a company, it’s essential to make well-informed decisions and take a careful approach as you act. While being ‘reasonable’ might seem vague, aim to recognise what you don’t know and may need to research before taking action.
Specifically, the expectation of care, skill and diligence increases as you become more experienced as a director. Therefore, build good habits early on.
- Independent judgement
Similar to the previous point, company directors also need to be prepared to make the decisions they feel are right. When running a business, it may be difficult to navigate a power dynamic where you have family members helping you or people with strong opinions on the future of the company.
While they might mean well in trying to support growing your business, the company’s actions must be driven by the director, and no one else. Therefore, you need to take an independent mindset.
- Avoid conflicts of interest
As a consequence of points 3 and 4, you must try to avoid situations where your interests for the company and your personal gain are conflicted.
As you first build your company, this may seem difficult to separate: you are the director and the shareholder. Therefore, what’s good for shareholders is what’s good for you. However, this dynamic changes as new investors are brought in as your company grows. Therefore, there is a balance to be struck for what’s best for the company overall.
You should disclose when a possible conflict of interest appears and follow the processes set out in the company’s articles of association to avoid any doubt. Crucially, this duty continues to apply if you’re no longer a director: you cannot take advantage of any information or opportunity that you became aware of while in the role.
- Third-party benefits
As you’re trading and competing for clients or customers, you should avoid accepting gifts or benefits from third parties, including suppliers or other business relationships your company may have.
Specifically, you cannot accept any if it’s because you’re a director. The company may allow you to accept certain benefits like corporate hospitality if it’s clear there’s no conflict of interest. Make sure to consult your articles of association to be sure.
- Keep a record
It’s vital to keep an accurate record of performance in order to evidence your care for the company’s financial accounts and performance. As an overview, you need to maintain a record and development of the following:
- The company’s rules and articles of association
- Company records on shareholders and their decisions
- Annual financial accounts and Company Tax Return (including payments of Corporation tax, VAT and employee PAYE records).
- Disclosures of situations where you might have personally benefited from a transaction the company made (for example, if you own stock in or have a close family member as one of your suppliers)
How can a company secretary help?
Directors can appoint a secretary to help with these duties, especially for help with the finer points of legal and tax compliance. However, it is still the director who is responsible for what they do and produce for the company. Therefore, make sure to appoint someone you trust and understand what they do.
What happens if you don’t follow the rules?
Directors who don’t follow duties outlined above and instead display ‘unfit conduct’ can be banned from running a company by being disqualified for up to 15 years by Companies House. This can be caused by allowing the company to continue trading while it can’t pay its debts or by submitting incorrect or inaccurate company records. Therefore, it’s vital to keep to the rules of running a company as the director.
How keep on top of financial admin from Day One
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