Every Limited Company must have a Director, who is in charge of running the company. Let's say you have decided to set up a Limited Company and have appointed yourself as a Director. It is crucial to know your duties as a Director or you can land yourself in legal trouble. As part of "Path of Education for New Contractors", we try to look at the main responsibilities of a Director.
As a Director, you are primarily responsible for making your company a success by utilising your knowledge, talent, and judgement to ensure the growth of your Limited Company.
Example 1: Let's say you start a real estate business. Your responsibilities will include marketing your services to potential clients, building connections to get more leads, keeping a track of all properties coming up for sale or rent in your area, following up with customers, and doing your best to close maximum number of deals. Additionally, you will have to take decisions like how much to spend on marketing or office administration, whether you want to employ additional staff, and whether you want to target properties in only particular areas. Overall, you need to do everything to make your venture a success.
The Articles of Association is a set of rules covering all major aspects of running a Limited Company. The Articles of Association has rules regarding Director's powers and responsibilities, appointment of other Directors, distribution of dividends, etc. As a Director, you need to abide by all the rules stated in the Articles of Association and if necessary, consult experts to ensure you understand all the rules.
Example 2: One of the rules in the Articles of Association states that Directors should keep a record of all major decisions taken by shareholders, for at least ten years. So as a Director, it is your duty to maintain accurate records of major decisions. Though you can assign this task to someone else, the responsibility remains with you.
For company related matters, as a Director, you should not take any decisions that are less beneficial to the company and more to yourself or other shareholders. Also, you should not accept any gifts from a third-party, which can influence your independent decision making. For instance, when it comes to dividends you should not be influenced by shareholders to declare a higher dividend if you feel that more money should be kept in reserve for future investments.
Example 3: As a Director you can decide your own salary. However, it is your duty that your payment is fair in relation to the expected sales, profits and other expenses of your company. So if you pay yourself a higher salary, while leaving less money for marketing and sales, this decision will benefit you more than the company.
You need to inform shareholders if you are likely to benefit personally from a potential transaction. Such benefit is also known as transactional conflict of interest.
Example 4: Suppose a company is planning to do business with another company in which your spouse is an employee. In such a transaction, there is a risk of you giving some special concessions to the potential customer. Another example of a transactional conflict of interest will be if you recommend awarding a particular contract to another company, in which you are a shareholder. In the second transaction, you are going to benefit indirectly and so you need to inform shareholders of such potential benefits in advance.
You need to maintain all the records of your company. These records include details of Directors and shareholders, records of shareholder voting and resolutions, and sale of shares. You also need to maintain records of any new loans or mortgages taken against assets of the company and any financial commitments made by the company. Example of financial commitments are promise of repayment of loans at a certain date, or a promise to give something if the company is not able to repay back a loan.
You need to inform Companies House or HM Revenues and Customs (HMRC), or both, regarding any changes in your company. You can delegate these responsibilities to a company secretary or assign these responsibilities to a professional agency. If you report any changes to the Companies House, you must receive an official confirmation from Companies House before you any changes are implemented.
Example 5: If you're changing your registered address, you need to inform Companies House. If approved, Companies House will inform HMRC. If there are any changes to the business name or business trading address or if you are appointing an accountant or tax consultant, you need to inform HMRC. Companies House must be advised of changes in Director details, appointment or removal of company secretaries, and issuance of new shares.
As a Director, you are responsible for the maintenance of all records such as invoices, purchases, expenses, assets, liabilities, turnovers, debts, cash flow. The annual accounts should be approved by the Board of Directors and as a Director you must sign the balance sheet. It is the Director's legal responsibility for filing the accounts with Companies House. You will also have to circulate the annual accounts to the shareholders.
Please note that it is a criminal offence not to submit accounts and annual returns to the Companies House on time. If convicted, Directors can be fined up to £5,000 per offence. On average, nearly 1600 directors are prosecuted every year for delaying the submission of their accounts and annual returns to the Companies House. Additionally, failure to maintain accounting records can lead to a fine of up to £3,000 by HMRC.
As a first step, you need to register yourself as a Limited Company contractor with HMRC and get your 10-digit Unique Taxpayer Reference Number (UTRs). For independent contractors, the deadline for filing online self-assessment returns is 31st January, for the year ending April of the previous year. So for the financial year ending April 2014, you need to file a self-assessment return by 31st January, 2015. You can hire an accountant, but you should remember that the ultimate responsibility of filing tax returns is with the Director. It is the Directors who are prosecuted and not the accountants and so you should provide all financial details to the accountants at least four months in advance.
In addition to personal tax returns, as a Director, you also need to file the returns of your company with the HMRC, even if you do not have any tax liabilities. Filing company tax returns with HMRC can be completed online, including details such as your companys accounting statements, calculations of corporate tax with supporting documents, and form CT600. The companys accounting statements should include the companys income, expenditure, assets and liabilities of the company.
As a Director, you also need to file the companys annual returns with Companies House. If you don't file these returns within the deadline, Companies House can prosecute you or even has the power to close down your company. Companies House annual returns are different from the ones filed with HMRC. Limited companys annual returns should include details like registered address, address where important documents are kept, details of Company Directors, details of owners, value and number of shares, etc.
As you can see, as a Director you need to take complete responsibility of managing the business. The Director has a lot of ethical responsibilities towards the success of the business, and so you need to avoid getting influenced by anybody when it comes to key business decisions. Additionally, you need to take care of accounting and taxation requirements.
To help you in accounting matters, our site has many useful resources including a timesheet creator, invoice creator and payslip creator, along with tools for managing balance sheets, inventory and assets. If you want to use an agency for accounting and taxation, please visit Tempo to find out about their Limited Company and Limited Company Gold services.
You may also find the following contractor calculators useful for your salary and tax calculations.
If you are looking for accounting support with your new limited company or if you need support setting up your accounts as a contractor, iCalculator recommends Tempo, a solid, dependable company that the team at iCalculator have known and worked with since 2009.