Without the right information, it will be difficult for you to fulfil your responsibilities as a director, and therefore protect yourself from claims. Your responsibilities include the requirement to exercise an acceptable degree of care in your actions as a director. In many companies, individual directors take primary responsibility for particular areas, such as the finance director for financial matters.
Even so, every director would normally expect to see management accounts and any other important information regarding the overall position of the company. If the company gets into financial trouble, so that directors' actions are scrutinised by a liquidator or administrator, each director, whether financially literate or not, will be expected to have given their attention to the accounts, queried any aspect that they did not understand and pressed for appropriate remedial action.
Accounts are exempt from audit for private companies under the 'small companies regime', so long as the relevant company meets two out of the following criteria in a year:. The annual accounts must be presented for board approval, and the balance sheet signed by a director. The board must also approve and sign off the directors' report. Companies that do not meet the requirements of the small companies regime see above are required to also prepare a strategic report which includes a business review previously part of the directors' report.
Larger companies may also be required to prepare additional reports. The process of putting together annual accounts and then filing at Companies House can be a time-consuming and complicated process. It is therefore advisable to obtain the assistance of an accountant. Full financial statements must be circulated to the shareholders. The directors are also legally responsible for filing the accounts with Companies House see 8.
You need a board meeting whenever you need to take a decision which requires board approval. To some extent, this will depend on the company's articles of association and how much authority has been delegated by the board to other personnel.
You must also hold a board meeting if any director asks for one. In practice, you will need at least one board meeting annually to approve the annual accounts.
As a director, you also need to ensure that the number of board meetings you have and the matters on the agenda and the way the meeting is conducted , show you are complying with your duties as a director - for example, that each of you is promoting the long-term success of the company and exercising independent judgement. Most companies hold regular board meetings - quarterly or monthly - to review management accounts, discuss strategy and so on. Of course, these meetings can be supplemented by informal meetings of some or all of the directors for discussions where formal board approval is not required.
If you cannot physically attend a board meeting, then most articles of association including the default model articles of association allow directors to take part by electronic means such as telephone or videoconference, for an 'alternate' to attend in their place, or for decisions to be made by every director signing an identical 'written resolution in lieu of a meeting' rather than attending a meeting.
Private companies are free to pass written shareholder resolutions by default, and are not otherwise required to hold an annual general meeting of the shareholders unless their articles of association specifically require them to.
This has made shareholder general meetings much less common. However, from time to time the directors may find that a decision needs to be made that has to be referred back to a shareholder meeting - usually because of the Companies Act, the company's articles or because some outside agreement such as a shareholders' agreement says they must.
Otherwise, for most shareholder decisions in start-ups and SMEs, circulating a written resolution will generally be quicker and easier than calling a general meeting. The board must ensure that the company complies with all legislation and regulations relevant to its business.
You should ensure that at least one of the directors is familiar with each of the following areas of the law:. You could be held personally liable for losses resulting from illegal acts, acting beyond your powers, or failing to use sufficient skill and care. You could become personally liable for company debts if you allow the company to trade while it is or is likely to become insolvent. If the company has difficulty meeting its financial obligations the directors should seek advice from an insolvency practitioner.
Some types of conduct can lead to disqualification from being a director. You might also be fined or face criminal prosecution - for example, for failing to keep proper accounting records, for fraudulent behaviour, or for serious health and safety shortcomings. You should keep yourself informed about what is going on in the business, and participate in its management, which means you should not sit by and let other directors act without being prepared to challenge them, no matter how dominant those other directors might be.
All the duties and responsibilities listed on this page are the minimum obligations for directors and officers of small propriety companies. Intentionally transferring the business and assets of an indebted company into a new company to avoid paying outstanding debts is known as illegal phoenix activity.
The new company often has the same directors and is involved in the same industry as the old company. If a liquidator has been appointed to the company, the director has an obligation to give the liquidator:.
Find out more about director duties during liquidation. You need to consider a number of statutory factors, including the long-term consequence of decisions, your firm's reputation and the interests of other stakeholders such as employees and the community. Liability for wrongful trading arises where a company has become insolvent and the directors have failed to act sufficiently promptly to deal with the situation.
Once the directors know or ought to know that the company cannot avoid insolvency, but they allow it to continue trading, they are likely to be made personally liable for any loss suffered as a result.
If you consider that there is any risk that the company may be insolvent, either because it cannot pay its debts as they fall due or because it has liabilities exceeding its assets, you should take appropriate accounting and legal advice.
Fraudulent trading is much more serious than wrongful trading, because it involves dishonesty and carries a criminal penalty. If the business of the company has been carried on with intent to defraud creditors eg by transferring assets out of the company before insolvency , then you are likely to be personally liable to make good the loss. You are also likely to be disqualified from acting as a director in future. Browse topics: Business ownership and management. To find out more, see our FAQs.
Appointing directors Every private limited company must have at least one company director. The first director s are appointed by the shareholders who form the company Directors are often also shareholders or employees of the company, but do not have to be. Subsequent appointments must follow rules set out in the articles of association These typically include procedures and maximum numbers.
Usually, the board can appoint a new director or the shareholders can appoint a person recommended by the board or proposed as a director in advance. You can appoint both executive and non-executive directors If you are a director but have no executive position within the company, you are classed as a non-executive. Non-executive directors still carry the same legal responsibilities as other directors, even if they have nothing to do with the day-to-day running of the company.
Even if not appointed, you could be classed as a shadow or 'de facto' director You may be a shadow director if the other directors act under your instructions. You may be a 'de facto' director if you act as if you were one - for example, if you resign your directorship but continue making decisions as a director. As a shadow director or a de facto director, you carry many of the legal responsibilities, and are subject to many of the penalties, of other directors. Some people are debarred from becoming directors Auditors may not be appointed directors of the companies for which they act.
The Companies Act imposes an array of other obligations on you as a director. Some are personal in nature and are specifically addressed to the directors. Others arise from the responsibility of the directors to ensure that the company carries out its obligations where both the company and the directors may face liability in the event of a failure. Potential penalties depend on the specific obligation breached but typically involve a fine or rarely, for the most serious offences only, imprisonment.
Some other key obligations relate to the restrictions and conditions placed on transactions between a director and his or her company and loans made by the company to a director. Obligations are also imposed on you as a director from other sources beyond the main companies legislation.
Some examples are:. Where a company is in financial difficulties the directors should seek independent advice as soon as possible if they are to avoid potential personal liability under insolvency legislation. The potential risks for a director in this area are complex and include the risk of being disqualified from holding the position of director or being involved in the promotion or management of a company for a period of up to 15 years.
Some of the key issues for a director of a company which is insolvent or approaching insolvency are:. A director does not need to have been dishonest to be liable for wrongful trading and he or she cannot avoid responsibility by resigning from the company when potential difficulties are spotted. This is a particularly thorny area for directors to navigate and proper advice should always be sought. COVID has the potential to severely impact the financing of companies across all sectors.
A company may but is not obliged to indemnify you in respect of certain proceedings brought against you by third parties. An indemnity can potentially cover both the cost of the claim itself and the costs involved in defending it but never the following:. Standard policy exclusions include fraud, dishonesty and criminal behaviour but the directors should ensure they understand any limitations on cover and that insurance policies are kept under regular review.
F or more information, please contact our Corporate team. The firm has acted on behalf of Waitrose on sale of heritage food guide to respected industry media platform CODE Hospitality.
The responsibilities and duties of a company director. What is my role as a director? What are my general duties under the Companies Act ? As a director you must: 1.
0コメント