business

You Might Have Director’s Duties And Not Realise It!

Our business writer Ian Garner as Chair of the IoD's North Yorkshire branch suggests we might not realise we are acting as directors.

Image by Gerd Altmann from Pixabay

You can hire other people to manage some of these things, for example an accountant, but you’re still legally responsible ...

According to the Companies Act 2006, a director is any person who occupies the position of director, by whatever name called. This is to ensure that the responsibilities and potential liabilities of directorship are not avoided simply by failing to register as a director at Companies House.

So, you may prefer to call yourself an entrepreneur, a founder, boss of a start-up or just a business leader, in the eyes of the law you are probably a director, whether you like it or not.

According to the Government (Gov.uk) the law says a director must:

Try to make the company a success, using your skills, experience and judgement
Follow the company’s rules, shown in its articles of association
Make decisions for the benefit of the company, not yourself
Tell the shareholders if you might personally benefit from a transaction the company makes
keep company records and report changes to Companies House and HM Revenue and Customs (HMRC)
Make sure the company’s accounts are a ‘true and fair view’ of the business’s finances
Register for self-assessment and send a personal self-assessment tax return every year

You can hire other people to manage some of these things, for example an accountant, but you’re still legally responsible for your company’s records, accounts and performance.

As a director you need to be aware that you are personally subject to statutory duties. It is also the case that your company is subject to statutory controls and you are responsible for ensuring that the company complies with such statutory controls.

Directors' duties are a series of statutory, common law and equitable obligations owed primarily by members of the board of directors to the corporation that employs them. It is a central part of corporate law and corporate governance.

Image by mohamed Hassan from Pixabay

The Companies Act 2006 codified certain common law and duties of directors for the first time. The act sets out those duties of directors, which are:

to act within powers in accordance with the company’s constitution and to use those powers only for the purposes for which they were conferred
to promote the success of the company for the benefit of its members
to exercise independent judgement
to exercise reasonable care, skill and diligence
to avoid conflicts of interest
not to accept benefits from third parties
to declare an interest in a proposed transaction or arrangement

There have been some amendments to the Act and its definitions etc so even if you have been familiar with the original Act it may be worth checking:

https://www.legislation.gov.uk/ukpga/2006/46/contents

You may be liable to penalties if you or your company fails to perform its statutory duties.

Image by Gerd Altmann from Pixabay

If you breach your duties, you could face civil action and, in some cases, criminal sanction. Infringement of directors’ duties and resulting legal action can have significant consequences for you, the company and any shareholders and creditors. This may result in losing a considerable amount of money or even facing criminal charges. There’s also a risk of being banned from directorship or even management consulting for years.

The most serious may be tried in the Crown Court or by magistrates. For example, if any business of a company is executed with intent to defraud creditors or for any fraudulent purpose, every person who commits the offence, may face up to 10 years in prison, an unlimited fine or both.

If you have just realised you may be a director, or just realised that you don’t know what your directors’ duties are, and the consequences, you should seek advice and maybe take a training course, it could be money well spent.

Ian Garner

Ian Garner is a retired Fellow of the Chartered Management Institute (FCMI) and a Fellow of the Institute of Directors (FIoD). He is Vice Chair of the Institute of Directors, North Yorkshire Branch. https://www.iod.com/events-community/regions/yorkshire-north-east He is founder and director at Practical Solutions Management, a strategic consultancy practice and skilled in developing strategy and providing strategic direction, specialising in business growth and leadership. Ian is a Board Member of Maggie’s Leeds. Maggie’s provides emotional and practical cancer support and information in centres across the UK and online, with their centre in Leeds based at St James’s Hospital.
The Institute of Directors (IoD) is the UK's largest membership organisation for business leaders, providing informative events, professional development courses for self-improvement, networking and expert advice. The IoD North Yorkshire Branch has members across Harrogate, York and the surrounding towns and is reaching out to business leaders, of large and small enterprises, to help their businesses succeed.

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