Q&A: Company directors’ responsibilities

Andrew Millet of Wisteria Formations provides an introduction to company directors’ key legal responsibilities.

So, there are rules governing company directors’ actions?

Indeed there are – and failure to live up to those responsibilities can bring serious consequences. To an extent, a company’s articles of association should set out what directors are allowed to do. Furthermore, the Companies Act 2006 verifies previous case law and means directors must act in a manner likely to promote their company’s success. They must also employ due skill and care in their duties, act reasonably and in good faith.

Tell me more…

Well, they must show an expected level of skill, knowledge and judgment while running the company and act as any reasonable person looking after their own business. This means, for example, they cannot act recklessly, for example, by endangering others or act illegally, for example, through committing fraud.

Acting in good faith might mean declaring conflicts of interest – it would certainly mean not accepting bribes or otherwise making personal gain at the company’s expense.

What about legislation?

Under company law, you must produce proper accounts and file specific documents with Companies House before deadline. The information you submit must be accurate. Obviously, then there are other laws that apply to all businesses, such as tax, health and safety and employment legislation. Get it wrong and you could be left facing large fines, disqualification as a director, personal liability for company debts or even a criminal conviction in the most extreme of cases.

What if one of my staff ‘late files’ with Companies House?

You’re still responsible, I’m afraid. And it leads to an automatic civil penalty of between £150 and £1,500 for a private company – more for a public company [£750 to £7,500].

Failing to file accounts or the annual return by deadline or at all is a criminal offence. If it goes to court and you lose you could end up with a criminal record and a fine of up to £5,000. You could also be disqualified from acting as a company director.

What documents must my company submit to Companies House?

Post registration, crucially, your annual return, which confirms or updates the information Companies House has about your directors, shareholders, etc. Obviously, your company must also file an annual report and accounts. 

What about less expected developments?

You must advise Companies House if you change your registered office address or if you appoint a new director/secretary or one gives up such a position at your company. If any of your personal details change, your address or maybe your name, when a female director gets married. For example, you must fill out and submit the necessary form, which should be available to download from the Companies House website.

Why are some directors disqualified?

Reasons vary, some carry on trading while knowing their company is insolvent; others fail to file proper accounts or send returns to Companies House. Failing to file tax returns and pay tax is another reason. Directors who act improperly also risk criminal conviction, as well as hefty fines and being made personally liable for their company’s debts. It’s never worth the risk. If the courts or the Insolvency Service find against you, you will be disqualified for a period between two and 15 years.

What are the likely consequences?

If you are disqualified, you must not be a company director or act as a director. You can’t aim to run a company through other directors. Obviously, you cannot form a new company, either. If you are caught willingly ignoring disqualification, you will be fined and could even end up in prison.