Q&A: Company directors’ responsibilities

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

Are there 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, acting reasonably and in good faith.

What does that mean in practice?

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 by endangering others; or act illegally 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.

Are there any legal obligations company directors must comply with?

Under company law, you must produce proper accounts and file specific documents with Companies House before a 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 the 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 other requirements must I comply with?

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. Or if any of your personal details change, such as your address or the name of a director who gets married. 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 risk a 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 of between two and 15 years.

What are the consequences of disqualification?

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.

• See the Law Donut for fuller information on the responsibilities of a director