So you’ve decided to take the plunge and start your own limited company in the UK. Congratulations! This is a significant and exciting step, but it also comes with a lot of responsibility. As a director of a limited company, you have specific duties and obligations that you must adhere to.
Whether you’re running a small team startup or a large company with hundreds of employees, the duties of a director are the same. They range from ensuring your business is legally responsible to avoiding conflicts of interest.
If you’re in the midst of starting your own limited company, or maybe you already run one, you need to know your duties as a director. In this guide, we’ve put together the general responsibilities of company directors and the legal duties of directors of limited companies as outlined by the Companies Act 2006.
What Is a Company Director?
To set up a limited company in the UK, your business must have a director. A company director’s primary responsibility is to set the overall strategy for the company and make high-level decisions about its long-term future. This includes things like:
- Setting financial goals
- Approving new products or services
- Green-lighting major projects
- Hiring and firing key personnel.
In short, company directors are responsible for ensuring the company is heading in the right direction and achieving its goals.
To do this effectively, company directors need to have a deep understanding of the industry in which they operate as well as the various internal and external factors that could impact their business. They also need to be able to think long-term; after all, the decisions they make today will determine the direction of the company for years to come.
Company directors also need to have strong leadership skills in order to guide and motivate their team. This includes being able to:
- Lead board meetings
- Delegate effectively
- Provide clear direction
- Give constructive feedback
- Resolve conflicts.
At the end of the day, a company director’s success depends largely on their ability to lead and inspire their team to achieve greatness.
Read our guide to company directors to find out everything you need to know.
The Duties of a Company Director
Alongside needing a variety of skills to be a limited company director, there are also duties and responsibilities you must carry out as a company director. Companies House clearly outlines these duties, and you are legally obliged to perform them under the Companies Act 2006.
It’s important to note that these responsibilities still apply if:
- You do not take an active role as a director
- You are not formally appointed as a director
- You follow someone else’s direction
- You are not on the board of directors but control it.
As your company’s director, you must always fulfil these responsibilities. You can choose to delegate specific tasks, but you will still be held accountable if anything is incorrect. For example, you could use accountancy services to complete your company’s tax return, but you are responsible if your accountant gets something wrong.
1. Keep Your Business’s Companies House Information up to Date
As the director of a company, it is your responsibility to ensure that your business’s information is always up to date with Companies House. This includes:
- Your confirmation statement
- Your annual accounts(including dormant accounts)
- Changes to your company’s registered office address
- All changes in company officers or their personal details
- Changes in share allotment
- Registration of charges (mortgage)
- Changes to people with significant control within your company.
Not only is this a legal requirement, but it also helps ensure that your company runs smoothly and efficiently.
2. Comply With Your Company’s Constitution
Alongside informing Companies House of any changes to your business, you must comply with your company’s constitution at all times. Your company’s constitution is outlined in your articles of association.
When you register your business with Companies House, you submit both your memorandum and articles of association. These articles document how the company should be run and set out the rights and responsibilities of directors. They include rules and guidelines on the following:
- Member’s rights, liability and duties
- Directors’ power and responsibilities
- Distribution of profits
- Appointment and removal of directors
- Decision-making process.
Ignoring or deliberately contravening any provisions set out in the constitution can have serious financial consequences. It’s crucial that you familiarise yourself with it before taking on any duties as a director.
Read our comprehensive guide to company memorandum and articles of association.
3. Promote the Success of your Company
This one might seem a little obvious, but it can be a complex duty. As a director, you must always act in the company’s best interests. This means making decisions that will benefit the company as a whole rather than simply furthering your own personal agenda.
Of course, this isn’t always easy, but it’s important to remember that your ultimate goal should be to make the company successful.
Not only should you act in the best interests of the company, but you should also actively promote its success. This means taking steps to ensure that the company is profitable and growing. It’s your job to create an environment in which the company can thrive and consider various stakeholders when making decisions, including:
- Shareholders
- Employees
- Customers
Alongside the people that your decision can affect, you should also always consider the impact of any decisions on the environment and your company’s reputation.
4. Exercise Reasonable Care, Skill, and Diligence
As a director, you are expected to be a reasonably diligent person. Throughout your time as a director, you’ll need to exercise reasonable care, skill, and diligence when carrying out your duties.
Not long ago, businesses could appoint company directors based on their name and reputation with no expectation that they would carry out any directorial duties. Nowadays, directors are held to a higher standard and are expected to have the knowledge, skill and experience to carry out a director’s duty successfully.
This means working hard to ensure that the company is run efficiently and effectively. It also means being prepared for shareholders’ meetings and making decisions that align with the company’s best interests.
5. Avoid Conflicts of Interest and Personal Benefits
Directors must avoid conflicts of interest and not accept benefits for personal gain whenever possible. A conflict of interest arises when you have personal interests that conflict with your duties as a director.
For example, if you’re offered a board position by another company that would require you to disclose confidential information about your current company, you would be in violation of your duty as a director if you took that position without first informing your current shareholders about the offer.
Conflicts of interest are not always avoidable. If you have stakes in multiple companies, potentially, a situation could arise in which your attention and loyalty are torn. In those situations, you must disclose details of the case to your board members, who will then independently decide how to proceed.
Third-party gifts and personal benefits can also affect your judgement as a director. It’s good to avoid accepting gifts from outside influences which may have an ulterior motive. However, if unavoidable, you should not consider these benefits when making company decisions and disclose details to your board members.
6. Exercise Independent Judgement
As a limited company director, you must exercise independent judgement and develop your own informed view of the company’s activities without the influence of outside stakeholders.
While making decisions based on requests from other stakeholders like major shareholders, other directors, or experts is easy, it’s crucial to remain independent.
To do this, you need to be able to identify and assess risks objectively, make decisions and take appropriate action. You also need to be able to challenge and be challenged on the company’s activities. This requires you to have an in-depth knowledge of the company’s business and affairs.
7. Keep Accurate Records
As a limited company director, it’s essential to keep accurate records of all decisions you make. The best way to do this is to take minutes of all board meetings. This ensures that there is a written record of what was discussed and decided at the meeting, which can be referred back to at a later date if needed.
Taking minutes also allows directors to keep track of their own performance and progress over time. Additionally, minutes can be used as evidence in any legal proceedings that may arise concerning the company. Therefore, taking minutes is an essential part of being a responsible and effective limited company director.
Benefits of Being a Limited Company Director
As you can see, being a company director comes with a lot of responsibility — after all, you’re responsible for the success or failure of the business. But it also comes with a lot of advantages.
Here are five benefits of being a company director that might just persuade you to take the plunge:
1. You’re in Control
As the company director, you’re in control of the day-to-day running of the business. You get to make all the major decisions, from choosing which products or services to offer to setting the price points. Of course, this also means that you’re also responsible for any mistakes, but it’s still a lot of fun being able to call all the shots.
2. You Get To Be creative
One of the best things about being a company director is that you get to use your creativity to develop new ideas and strategies for growing the business. Whether it’s coming up with a new marketing campaign or launching a new product line, as the company director, you get to have your say in everything.
3. You Set Your Own Hours
One of the biggest perks of being a company director is that you can pretty much set your own hours. There will be times when you have to put in long hours to get a project finished or meet a deadline, but in general, you can structure your day however you want. This is perfect if you have young children or have another job when you start your own company.
4. You Get To Meet New People
As a company director, you’ll have the opportunity to meet lots of new people, both inside and outside of your industry. This is great for networking and can even lead to some valuable business relationships down the line.
5. You Learn New Skills
Running your own business will teach you plenty of new skills, from marketing and sales to financial management and customer service. Not only will these skills be useful in your current role, but they’ll also come in handy if you ever decide to move on to another venture.
Become a Limited Company Director Today with Mint Formations
Are you looking to take your career to the next level? Becoming a limited company director is a great way to do just that. Not only will you have more control over your work, but you’ll also be able to enjoy the many perks of being your own boss.
And with Mint Formations, becoming a limited company director is easier than ever.
Form your own limited company with Mint Formations today for as little as £12.99. We’ll take care of all the paperwork and ensure everything is in order, so you can focus on what’s really important — running your business. So don’t wait any longer; take the first step towards success and become a limited company director today.
