Directors are legally responsible for overseeing the activities and performance of a limited company, by making operational and strategic business decisions, managing finances, and ensuring that the company meets all of its statutory obligations.
It is an important and all-encompassing role that can vary greatly from business to business. In general, however, there are 10 duties that all company directors must perform to comply with the Companies Act 2006 and other relevant legislation and regulations.
1. Follow the company’s constitution
The constitution of a limited company is known as the articles of association. It is a written set of rules and regulations that governs the company and its directors and members. Directors must act in accordance with the articles of association at all times, only exercising their powers for their proper purposes.
2. Promote the success of the company
Directors have a legal obligation to act in the best interests of the company, promoting its success for the benefit of its members (i.e. the shareholders or guarantors who own the company).
In the process of doing so, directors must also consider the consequences and impact of their decisions on employees, customers, creditors and other business relationships, members of the general public, the community, and the environment.
3. Exercise independent judgement
Company directors should not allow their powers to be influenced or controlled by others. It is perfectly reasonable to accept advice, but directors must always exercise independent judgement when making final decisions.
4. Exercise reasonable care, skill and diligence
Directors are expected to exercise reasonable care, perform to the best of their abilities, and utilise any relevant skills, knowledge, or experience that may have.
5. Avoid conflicts of interest
Company directors must avoid conflicts of interest at all times by steering clear of situations that may divide their loyalties. If any potential conflicts of interest should arise, the other directors (if any) and members should be informed.
6. Not accept benefits from third parties
To maintain their integrity and avoid conflicts of interest, directors must not accept benefits that any third party offers to them on the strength of their role in the company.
Such conduct can give rise to expectation, misinterpretation, and suspicion, which would call into question the propriety and probity of not only the director, but the company as a whole.
7. Disclose interests in proposed transactions or arrangements
If there is potential for a director to personally benefit from a proposed or existing transaction or arrangement entered into by the company, this interest must be disclosed to the other directors (if any) and members.
An example may be if a company is planning to enter into a contract with a business that is owned by a director’s spouse or other family member, or a business in which the director owns shares.
8. Maintain filing and reporting obligations
To comply with UK corporate law, directors have a legal duty to maintain a number of limited company filing and reporting obligations. This includes, but is not limited to:
- Registering the company for Corporation Tax
- Registering for VAT and PAYE
- Preparing and filing annual accounts and Company Tax Returns
- Preparing and filing Confirmation Statements
- Paying business taxes
- Keeping statutory registers and accounting records
- Reporting changes to the company’s details
- Maintaining company addresses, signage, and stationery
9. Comply with additional legislation and regulations
Beyond UK company law, directors and their companies may be subject to a range of additional legislation and regulations, including:
- Health and safety laws
- Employment law
- Consumer rights
- Trade descriptions
- Competition law
- General Data Protection Regulation (GDPR)
- Licensing laws
- Environmental regulations
- Food safety and hygiene
- Intellectual property
- Equality and diversity
- Product safety
- Industry-specific laws and regulations
- Legal requirements related to regulated professions
10. Report personal income
Most directors receive a salary through PAYE, but they may also receive dividends and taxable benefits. If a director receives untaxed income from any source, he/she must register for Self Assessment to report and pay tax on these earnings.