Are you a Directors of a Limited Company, lets understand the responsibilities.
CA Radhika Lohiya ASA
Chartered Accountant | Australian Outsource Accounting | Virtual CFO Services
What is a limited company?
A limited company is a business which is legally separate to its owners. It’s?a different type of structure to being a sole trader?or partnership, with different rules and requirements to follow.
Private limited companies are registered with Companies House, making things like director details and financial information publicly available.
Who can be a company director?
Company directors are responsible for running the business and taking care of things like?the Company Tax Return, so it’s important that they’re capable of carrying out their duties.
Limited companies do need to have at least one director who is a ‘natural’ person – that is, an actual human individual – at all times, from incorporation onwards.
That person might be the only director,?or there might be others?– directors can even be other corporate entities. For instance, a partnership, or even another limited company.
A company director who is a natural person must:
You don’t need to live in the UK to be the director of a UK business, but the company will need to have?a UK registered office.
What do company directors do?
As the director of a limited company, you might be working by yourself in a business which you own, in which case, you’re pretty much doing everything!
In some companies there might be several directors who each take responsibility for a specific area of the business, such as financial management, marketing, or research. Overall, though, there are some responsibilities which are shared by all directors.
Know the financial health of their company
It’s really important that you understand the financial health of your company if you’re going to be an effective company director. That’s because the greater your awareness, the better able you’ll be to make informed decisions about financial risks and opportunities, as well as where the company is headed.
Directors should also take the time to regularly look over the company’s financial statements, such as balance sheet reports, and?cash flow forecasts.
A good understanding of the company’s key financial ratios is also essential here if you’re a company director. This includes the current ratio and debt-to-equity ratio, which can give a handy insight into the liquidity and financial stability of the business.
Additionally, directors should know if there’s been any change in the company’s financial performance recently. For example, has revenue suddenly increased or dropped? Are there any new or substantial debts? Only then can any trends be identified, helping to inform important business decisions.
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Act in the best interests of the company
UK law outlines certain things you must legally do as a company director. The first is you must act in the best interests of the company at all times, avoiding any conflicts of interest wherever possible.
Company directors are also expected to put their personal interests second to the company and shouldn’t favour a particular group of shareholders over any others.
Put corporate governance front and centre
If a company is going to be run effectively and ethically it needs to have good corporate governance. This means company directors should know what the company’s governance framework looks like and make sure it’s always put into practice.
So, what is corporate governance we hear you ask. Well, corporate governance is basically a series of processes, practices and rules that are used in directing and controlling a company. It aims to get a good balance between the interests of all the different company stakeholders, including shareholders, directors, managers and staff.
Effectively lead and manage the company
Being a company director isn’t always a walk in the park. Ultimately the buck stops with you when it comes to making strategic decisions that affect the company on every level. Sometimes these decisions won’t make you very popular, but it’s an important responsibility that comes with the role.
As a company director, you’re also a key player in setting the direction of the company and managing its performance. You’ll need to set goals and objectives, allocate resources, and make decisions about new business ventures or products?according to your business plan.
You’ll need a business plan! Not only that, but you’ll also be responsible for managing the company’s operations, finances, and budget setting.
Communicate with stakeholders
The term ‘stakeholder’ basically refers to anyone with a business interest in the company. It’s a broad brush, with stakeholders including other company directors, managers, shareholders, customers, employees, and suppliers. Effectively communicating with all of them is essential if your business is going to succeed.
Company directors need to be proactive in their communication with stakeholders, keeping them updated on the company’s performance, operations and future plans. Not only does this increase trust in your brand but boosts your credibility too. It also helps to identify any issues or concerns that crop up.
There are many ways for directors to communicate with stakeholders, for example through the company website, mailshots, newsletters, meetings and annual reports. It’s also important to listen to what your stakeholders value in the company and get their input when you make decisions.
What happens if these responsibilities aren’t taken seriously?
Under the Companies Act 2006 directors can be liable if they do not carry out some of these responsibilities effectively. As mentioned, this could bring about hefty fines – or worse – not to mention damage to the company’s reputation.
Even if you’re the only director in your business, you don’t have to do everything alone. Ask for help from appropriate reliable sources when you need it!