As a company director, you’re legally accountable for your company’s records, accounts and performance, even if you hire someone else to handle certain day-to-day responsibilities (such as an accountant). The information that you’re responsible for sending to Companies House are as follows:
- Your annual confirmation statement (a document detailing general information about your company’s directors, registered office address, shareholders, etc.)
- Annual accounts, even if dormant
- Any changes in your company’s officers (or if their details change)
- If you move offices
- The allotment of shares
- Registration of a charge (loan security e.g., a mortgage)
- Any changes to your company’s people with significant control
While this information is important, it’s only a small part of the duties that company directors are legally required to adhere to. Company director responsibilities are split into 7 distinct sections, each of which are broadly applicable to every company, while remaining unique to your situation.
What responsibilities does a company director have?
The 7 responsibilities of a director are designed by Companies House to keep the interests of the organisation at the core of everything that you do.
1. Act within powers under company’s constitution
Every company will have an established set of rules unique to their business and board. These rules fall under the company’s constitution as the ‘articles of association’, and will have an impact on a director’s decision-making powers. These rules can be a little more generic, or fully tailored to the organisation, so taking the time to internalise them is paramount.
This is one of the most important responsibilities to be aware of, as it has a daily impact on your workflow. Exceeding your powers can result in your decisions being overruled, and you might have to reimburse the business for any financial losses incurred as a result of your actions.
2. Promote the success of the company
Perhaps one of the most obvious responsibilities of a director, you should act with the best interests of the organisation in mind at all times.
This rule puts it on the director to weigh up ideas and options presented by stakeholders (employees, suppliers, customers and communities, etc.), and make final decisions that benefit the company. A director should act in good faith, considering the impact of the business’ actions on the environment, the company’s reputation and the long-term success of the organisation and its shareholders.
Any decisions that are made must be justified, and cannot work for any one individual or group (specific executives, shareholders or other business entities, for example). This makes the director role one that requires finesse to navigate, as you need to listen to suggestions and make measured decisions based on everyone’s perspectives.
3. Exercise independent judgement
A competent director needs to be comfortable making decisions based on their own judgement. This means that they strike the perfect balance between listening to the opinions of other parties and making final decisions independently.
It’s very easy to bend to the will of major shareholders, but a director needs to form their own views and make their own choices with the company’s best interests in mind. It’s important to listen to those invested in the company, but, at the end of the day, the final say belongs to the director.
4. Ensure reasonable care, skill and diligence
Company directors are expected to execute their role with a reasonable level of competence. Essentially, this duty stipulates that a diligent person with good industry knowledge, skill and experience should be appointed as director, as only one with these talents is capable of succeeding in the role.
In addition to this, this duty also outlines that directors with specific training (a lawyer or doctor, for example) are held in higher esteem than less qualified employees on relevant topics. A director may be appointed as a result of their unique expertise, which means their responsibilities may be shaped accordingly.
5. Avoid conflicts of interest
Impartiality is essential as a director, which means that it’s important for you to declare any possible conflicts of interest, and avoid any situations in which a conflict may arise, allowing you to remain objective in your decision making.
Conflicts of interest may include:
- Being an advisor to a competitor.
- Holding shares in a company that may be affected by your actions as director (this could be suppliers, clients or competitors of the organisation you’re working for).
- Any business/personal relationships with people that could be affected by the company.
- Personally benefitting from the information you learn as director – this can also relate to any property or opportunities that the company doesn’t take advantage of.
6. To not accept gifts or benefits from a third party
A director who is given a gift may not be able to be completely objective (as the gift giver may be favoured in the future). As a result, directors may not accept gifts or benefits that could sway their decision-making process.
7. Declare any interests in a transaction
In order to maintain full transparency, a director has a duty to disclose any interest in company transactions and arrangements.
Other directorial responsibilities
Ensure records are kept
All minutes from board meetings are required by law to be kept for a minimum of 10 years. This is to ensure that, should there be an issue in the future, you can provide evidence of what exactly was discussed. This could exonerate you if any wrongdoing is discovered, so it’s a crucial step to adhere to.
While something that none of us want to think about, it’s important to consider what needs to happen should your business become insolvent. In many cases, directors will be partially or fully responsible for outstanding company debts as a result of their personal guarantee to pay back what’s owed using their assets.
When insolvent, your legal responsibility shifts from your shareholders to your creditors, so it’s important that you’re seen to be putting your creditors’ interests first. It’s highly recommended that you take out personal guarantee insurance in order to pay up to 80% of your debts and protect your assets.
Confidentiality is crucial as a director. As the leader of the business, you’ll be privy to a whole host of mission-critical information that should remain confidential at all times. Failure to do so could be considered a conflict of interest and put the company in jeopardy.
Protect your personal guarantee with Purbeck
Directors have a lot on their plates – there’s plenty of rules to remember! However, there’s no reason that your personal guarantee should be another source of stress. At Purbeck, we understand that it’s more than your signature on the dotted line when it comes to personal guarantees. We offer personal guarantee insurance to help SME directors who have business loans or other financial agreements.
We work closely with directors across the UK, providing key support and peace of mind, allowing you to focus on the most important thing – making your business a success. Contact us today to get in touch with one of our specialist underwriters. We’re on hand to advise on the best route to take to suit your business.