Running a limited company efficiently and diligently can only become possible if there’s an individual in charge of overseeing every small detail occurring in the company. That is where a director comes to the forefront. Hence, in this blog, we will take a deep dive into discussing what is a company director and what are directors’ responsibilities in a private limited company, ensuring you stay mindful and conduct your duties in a committed manner.
A limited company owner or shareholders can run the company themselves. Alternatively, if their company is large and they lack the necessary expertise to manage routine affairs, they can appoint a director to perform and oversee all the company-related tasks on their behalf.
Therefore, if you have been appointed for this role, you must know what is a company director and what directors’ responsibilities are in a private limited company. Moreover, fulfilling these legal duties is not just to ensure legal compliance but also significant to ensure there is transparency and integrity in all matters.
What is a company director?
Primarily, a limited company operates via two bodies of people:
- The members who own it( also called the shareholders).
- A director or board of directors.
Now, as per the law, all limited companies must have at least one director who will essentially manage the operational duties of the company. Although the shareholders can supervise their business activities themselves, they appoint directors to ensure that their business matters are dealt with accurately and effectively.
Thus, the question of what is a company director can be answered: the directors are the official representatives or agents of a limited company that the shareholders appoint to supervise the company’s routine tasks, ensure its legal compliance, and make managerial and strategic decisions.
Consequently, your prime responsibility as a director is to attend board meetings to help the board effectively make these decisions and ensure the fulfillment of the company’s obligations.
Notably, the fundamental rule requires the company directors to operate as a board. However, the board can also transfer or assign specific powers to individual directors.
Apart from the directors, shareholders also play a crucial role in a limited company since they own the company in proportion to the shares they hold. Therefore, to learn more about limited company shareholders, read our blog:
A comprehensive guide to limited company shareholders.
What are directors’ responsibilities in a private limited company?
In line with the Companies Act 2006, there are certain obligatory responsibilities for the directors to carry out. The Companies Act was created with the main purpose of ensuring all directors execute their authority and powers responsibly and promote the company’s success.
The following are the directors’ responsibilities in a private limited company:
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Directors must act within their assigned powers:
First and foremost, the company directors are bound to adhere to the company’s working constitution and other significant documents. The constitution is the document that a company formulates at the time of its creation and incorporation.
More specifically, you must have a firm grasp of the Articles of Association. Articles of Association are written governing rules for running the limited company agreed upon by the shareholders.
Moreover, these articles state the rules for the board of directors and their decision-making powers. Likewise, the directors must also be strongly familiar with the shareholders agreement to know which powers are outside the purview of their designated powers. Hence, you must execute your powers appropriately.
It is essential to know that if you ever exercise your powers beyond the set jurisdiction, the company members can not only overturn your decisions but can also fix your liability to compensate for the company’s related financial loss incurred.
Directors are responsible to promote the success of the company:
Another major duty among the directors’ responsibilities in a private limited company is to advance the company’s goals, vision, and financial success. For instance, the directors must make discreet and farsighted decisions that will likely benefit the members and the company in the long run.
Further elaborating, you must take into account:
- The factors that will bolster a company’s credibility and good reputation in the eyes of potential investors;
- The impact your decisions could make on the company employees, its shareholders, clients, and suppliers alike;
- The decisions that are environment-friendly.
Directors must remain impersonal, unbiased, and objective:
Maintaining neutrality and impersonality is another important duty among directors’ responsibilities in private limited companies. Even though it is an obvious one, it is likely to remain disregarded if the directors start to prioritise the interests of a few shareholders over those of everyone else.
Hence, you must remain objective and impartial to ensure that your duties only promote the company’s success and not the vested interests of a few stakeholders.
Similarly, the directors must not make decisions that will benefit them in a personal capacity rather than the company. As a result, you cannot take benefits from third parties or use their standing to gain personal profits.
Directors must be able to exercise independent judgement:
What is a company director?
You must ask yourself this question if you are not acting upon your rationality and taking blind dictations from others despite occupying the director’s position. To clarify, it is crucial that you exercise your own independent and free judgment consistent with your viewpoints and make your own decisions.
Although you must act within the ambit of the company’s assigned powers and adhere to the company’s principles, this doesn’t mean you will have to depend on someone else’s judgment or knowledge.
Ultimately, you must make sound decisions that are compatible with your competence, expertise, and skills.
Directors must be reasonable, diligent, and competent to carry out their duties:
It is of immense importance that the shareholders appoint a director who is well-versed, competent, and diligent enough to perform their relevant duties. Unlike in previous times, the directors are no longer appointed based on their well-known name or their far-famed reputation.
On the contrary, having a reasonably diligent person is the main criterion to assume the role of a director. As a result, it is obligatory upon you to perform your tasks up to par as a part of the directors’ responsibilities in a private limited company.
Directors must regard consider the well-being of the employees:
Directors must be aware that the hired staff performs their duties to the benefit of the company. Hence, it is vital that you remain cooperative towards the employees and resolve the disputes or conflicts that might occur among the employees.
Directors must prevent conflicts of interest:
Among the directors’ responsibilities in a private limited company, avoiding conflicts of interest is imperative. As a director, you must remain mindful that you cannot get involved in situations in which you have a direct or indirect interest that is in stark contrast to the company’s interests.
For greater clarity, a conflict of interest can occur if:
- You are distracted from your role and loyalty to the company because you have put a stake in another company that is a rival entity and a competitor against your company;
- You are favouring an employee exclusively because you have a personal relationship with them or you have developed an inclination towards them;
- You exploit your position to gain a personal advantage from the company’s decision. For instance, unauthorised use of company assets, hidden benefits, and gifts from clients.
- You are exploiting the company property or information to achieve a personal agenda.
Consequently, if you ever get embroiled in a situation where there is a conflict of interest, you must take it up with your fellow board members or shareholders immediately. Accordingly, they will decide how to deal with the conflict. In addition, skimming through the articles of association will help you learn the provisions about the company’s conflicts of interest.
On the contrary, if there is a certain activity or decision that you think comes under the company’s conflict of interest but the company authorises it, it is not a conflict and doesn’t affect your other responsibilities.
Directors must declare interest in proposed transaction or arrangement:
Consider the event where you are, directly or indirectly, interested in a transaction or deal with the company. It will be called another form of conflict of interest. To avert this, you must unfold the nature and scope of your interest to the shareholders or other directors.
Similarly, if your company hires or uses the services of someone you personally know, you must also declare that so that it does not appear as if you have influenced the decision.
Lastly, if the company is going to conduct a new transaction and you hold a personal interest in it, you must promptly reveal your interest before the company enters into the transaction.
Ensure company’s compliance with the relevant regulations:
Directors’ responsibilities in a private limited company include not only overseeing the company’s day-to-day management but also standing accountable to ensure the company complies with relevant laws and regulations, such as Companies House and HMRC statutory obligations, health and safety laws, employment laws, and data protection regulations.
Directors must carry out the company’s statutory obligations:
Statutory obligations refer to the obligation regarding the Companies House and HMRC, which, if not fulfilled, could lead your company to face legal fines and penalties. Furthermore, a director must perform the duty as a part of the directors’ responsibilities in a private limited company.
These obligations include:
- Maintaining the company’s registered details and notifying the Companies House and HMRC about any changes made;
- Maintaining statutory company records and making them publicly accessible.
- Registering the company with HMRC for Corporation Tax within three months of starting any business activity. To know more about corporation tax, read our blog: What is corporation tax and how it works for limited companies?
- Paying corporation tax and any other tax liabilities due within the given deadlines. Read our blog to learn how to pay corporation tax: How to file corporation tax for limited companies.
- Completing annual financial accounts for Companies House. These accounts are submitted on an annual basis.
- Filing confirmation statement. The confirmation statement, formerly known as the annual return, contains general information about the company. It is prepared annually and filed at Companies House once a year. Moreover, the prime purpose of confirmation is to contain accurate and up-to-date information about the company on the public register.
- Preparing company tax returns. As a director, you must prepare Company Tax Returns (CT600) and full statutory accounts with HMRC each year. To learn more about company tax returns, read: What are the filing obligations for a limited company?
- Providing members with copies of annual accounts;
- Allotting new shares and transferring shares.
To understand more about a limited company’s shares, visit our comprehensive guides:
What are limited company shares? Things you must know about.
What are different types of shares in a limited company?
Conclusion:
Overall, as an owner of a limited company, comprehending what is a company director and what are directors’ responsibilities in a private limited company ensures that your company decisions are taken with expertise and integrity.
Hence, if you are planning to hire a director for your limited company because its day-to-day operations have become extensive, Accountingfirms can help you find an adept accountant who will provide you with an elaborate consultation on a company’s director and what are their responsibilities to effectively process financial management and promote your company’s advancement.
Hence, visit us today!
If you found this article informative, you might benefit from reading our following guides on a limited company as well:
How to set up a limited company?
Limited company advantages and disadvantages.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.