The board of directors make strategic and operational decisions for a Company and are responsible for ensuring that the company meets its statutory obligations. Individual directors participate in board meetings to enable the board to reach decisions and ensure that the company’s obligations are fulfilled. It is important for a director to understand and adhere to the duties that are imposed upon them to prevent a breach of duties.
GENERAL STATUTORY DUTIES OF A DIRECTOR
To act within their powers (s171)
Act in accordance with the powers set out in the company’s Articles of Association and other resolutions or agreements.
To promote the success of the company (s172)
Act in a way they consider to be in good faith and promote the success of the company for the benefit of the members.
Examples of considerations are:
• the likely consequences of any decision in the long term
• the interests of the company’s employees
• the need to foster the company’s business relationships with suppliers, customers and others
• the impact of the company’s operations on the community and the environment
• the desirability of the company maintaining a reputation for high standards of business conduct
• the need to act fairly as between members of the company
To exercise independent judgement (s173)
It should be noted that there are circumstances when a director’s ability to exercise independent judgement is restricted when acting in accordance with an agreement entered into by a company or by a company’s constitution. The circumstances are recognised and noted in the Act.
To exercise reasonable care, skill and diligence (s174)
A director is required to exercise reasonable care, skill and diligence. The Act bases this on subjective and objective tests, meaning that the care, skills and diligence exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be experienced of a person carrying out the functions (subjective test) and the general knowledge, skill and experience that the director has (objective test).
To avoid conflict of interest (s175)
Directors must avoid circumstances where they may have a direct or indirect interest, which does or could potentially conflict with the interests of the company. Such conflicts may be avoided if the board have authorised the matter.
Not to accept benefits from third parties (s176)
A director must not accept benefits from third parties relating to their position as a director of the Company. This duty is designed to prevent a conflict of interest. Unlike the duty to avoid conflicts of interest, there is no provision for the board to authorise the benefit.
To declare interests in any proposed transaction or arrangement (s177)
A director must declare a direct or indirect interest in a proposed transaction or arrangement. In this respect, a director is treated as being either aware or ought to have been aware of the interest. Failure to declare an interest, may result in the transaction or arrangement being void and potential for the director to face a criminal penalty. It is the responsibility of the directors to understand and act in accordance with their duties under the Companies Act and failure to comply can result in penalties for a range of offences such as fraudulent trading, failure to keep proper accounting records and other offences relating to the statutory financial statements, destroying, mutilating or falsifying company records and failure to maintain or update statutory registers. Financial penalties for such offences can be up to £5,000, with certain offences punishable by a prison sentence. These include making false or deceptive statements.
ADDITIONAL DUTIES OF A DIRECTOR
In addition to the general statutory duties outlined, there are a number of other duties imposed upon directors. Additional duties include the following:
Submission of annual confirmation statement with Companies House
At least once every 12 months, directors are responsible for filing a Confirmation Statement with Companies House. This document confirms that the information held at Companies House is correct and up to date.
Filing annual accounts with Companies House
To report a company’s trading status and financial activity, directors must file annual accounts at Companies House. First accounts should be delivered no later than 21 months after the date of the company being incorporated. Subsequent annual accounts for a limited company must be filed with Companies House 9 months after the end of the company’s financial year. For those companies which have not traded, dormant accounts are also required to be filed with Companies House in the said timeframe.
Registering for business tax
It should be noted that within three months of a limited company starting to trade, the company must register with HMRC for corporation tax, which can be done online. It may also be necessary to register the company for other business taxes and HMRC services such as VAT, PAYE or the Construction Industry Scheme (CIS).
Filing Company Tax Returns and annual accounts with HMRC
Annual accounts must be delivered to HMRC as part of the Company Tax Return, which is used to work out and report how much Corporation Tax (if any) the company owes. The filing deadline is 12 months after the end of the company’s ‘accounting period’ for Corporation Tax. Directors must ensure the any Corporation Tax owed by the company is paid no later than 9 months and 1 day after the end of the Corporation Tax accounting period.
Submitting company changes to Companies House
Directors are responsible for submitting certain changes to Companies House which include registered office address, SAIL address, appointment or removal of a director/company secretary, change of director’s/company secretary details, change of shareholder, issue of new shares, change of PSC details, change of location of statutory records, change of company
name, change of articles of association and registration of charges. It should also be noted that HMRC should be notified if the company’s contact details change or when an accountant or tax advisor is appointed.
Important to note
As well as the above, other legislation such as Financial Service and Markets Act 2000, the Insolvency Act 1986, the Corporate Manslaughter and Corporate Homicide Act 2007 and the Bribery Act 2010 all impose additional duties and breach’s of such duties can give rise to both civil and criminal action.
Written by a member of the London Corporate Services Team