What Is the Role and Duties of a Company Director?

Last Updated: Jun 10, 2024
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Key Highlights

  • The Companies Act 2006 outlines seven general duties that all company directors in the UK must adhere to, including the duty to act in good faith, exercise reasonable care and skill, and avoid conflicts of interest.
  • As a director, you are legally responsible for ensuring your company’s records and accounts are appropriately maintained and filed with Companies House on time.
  • Directors can be personally liable should they disregard their legal duties, resulting in fines or imprisonment in severe cases.
  • Directors should seek independent advice if their company is facing insolvency.

Definition of a Company Director

A UK director is responsible for running the limited company on behalf of shareholders (members) by ensuring it complies with all legal requirements, including filings, managing daily operations, and company finances.

The company director must operate honestly and lawfully and make decisions for the benefit of the company and its members. He or she can also bind the company into valid contracts with third parties (buyers, lenders, suppliers, etc.) and act as a trustee of the company.

Insight

A UK company must have at least one director over 16 years. The director’s office is one of the distinct features that help companies achieve their limited liability status by establishing a clear distinction between shareholders and decision-making in the company. However, this protection hinges on shareholders adhering to their designated roles; any breach in this separation could undermine the limited liability shield.

At the helm of corporate leadership, the company director is one of the most essential roles in a company and is a cornerstone of organisational success. Collaborating effectively with a competent board, these directors are pivotal in steering businesses towards prosperity and sustainable growth.

Who Is Eligible to Be a Company Director of a Limited Company?

The company law outlines the eligibility criteria for directors as follows —

  • Individual — Any individual who meets the legal requirements can serve as a director and hold other roles within the company, such as company secretary or shareholder.

  • Corporate body — A corporate body, such as a limited liability partnership (LLP) or another company, can act as a director, known as a corporate director. This often occurs when the corporate body is appointed as a nominee director to represent the interests of its members or shareholders.

  • Partnership — In some instances, a partnership can serve as a director. However, this arrangement requires careful consideration of the partnership’s structure and legal obligations.

  • Group — Individuals or entities may jointly hold directorship positions, particularly in complex corporate structures involving holding companies and subsidiaries.

  • Another Limited Company A separate Ltd company can be appointed as a director of another company. This scenario commonly arises in group structures or when one company holds significant ownership or control over another.

  • Organisation/Business/Charity — Non-profit organisations, charities, and other entities can also serve as directors if they meet the legal requirements and objectives.

Insight

If a company has a corporate director, it must also have at least one director who is a natural person (an individual human) who is always responsible for the company’s management and decision-making. Every limited company must have at least one natural director, with no statutory limit on the maximum number of directors a company can appoint.

General Duties of a Company Director Under the Companies Act 2006

The roles and responsibilities of a company director are set out in the Companies Act 2006, the articles of association, and any service contract that may be in effect between a director and the business. Under the Act, directors fulfil the following obligations.

  1. Oversee that the company fulfils its statutory obligation.

    Directors are responsible for ensuring that the company meets its statutory obligations, such as filing its annual accounts and confirmation statements with Companies House, maintaining accurate financial records, and complying with HMRC tax regulations.

  2. Act within designated powers.

    Executive directors must adhere to its constitution, comply with its policy and act within the scope of delegated tasks. Therefore, they must be familiar with the company’s articles and wider constitutional documents, such as shareholder/joint venture agreements.

  3. Promote the success of the company.

    A company director plays a crucial role in driving its success by promoting its values and achievements, ensuring long-term sustainability and scalability. This responsibility encompasses various aspects mandated by legislation, including:

    • Considering the long-term consequences of decisions.

    • Upholding the interests of employees.

    • Managing business relationships with suppliers, customers, and stakeholders.

    • Addressing the company’s impact on the environment and community.

    • Upholding high standards of business conduct to maintain a positive reputation.

    • Acting fairly and justly in dealings between company members.

    • By fulfilling these responsibilities, directors contribute significantly to the company’s growth, reputation, and overall success.

  4. Make independent decisions.

    A director is privileged to exercise independent judgment responsibly and accountably. Nevertheless, these decisions must align with and adhere to the company’s constitution and other constitutional agreements.

  5. Consistently exercise reasonable skill, care, and diligence.

    A director must consistently exercise reasonable skill, care, and diligence, which should match or exceed the level expected of a diligent employee performing similar functions within the company.

    It’s crucial to understand that a director’s existing knowledge and abilities may not be sufficient if higher expectations are reasonable for their role. For example, if a director lacks specific skills or experience compared to what is typically expected for their position, they would still be held to a higher standard.

    Therefore, directors must adapt to their individual knowledge bases while striving to meet the standards expected for their role. They cannot rely solely on their current skills and knowledge if those are below the reasonable expectations for a director in their position.

  6. Avoid conflict of interest.

    They must constantly work to avoid situations where the personal interests of the company and those of the company are at odds. For example, they must prevent leveraging company property, information, or opportunities for personal gain.

    However, there are exceptions to this rule –

    • In situations where a thorough analysis determines that no conflict of interest is likely to arise.

    • When the conflict has been pre-authorised by the articles, a specific shareholder resolution, or by unaffected directors.

    Specific scenarios are recognised as outright conflicts of interest and should be avoided. For example –

    • One individual holding multiple directorship positions,

    • Personal investments that intersect with the company’s interests,

    • Taking up advisory roles with competitors.

    • Directly profiting from company resources.

    Directors must promptly disclose potential conflicts and seek approval from the board or shareholders when necessary. Additionally, directors should familiarise themselves with the company’s articles of association and adhere strictly to its constitution, even if conflicts have been authorised. By proactively managing disputes and adhering to established protocols, directors can uphold integrity and protect the company’s and its stakeholders’ interests.

  7. Reject gifts and any other benefit for third parties due to their role.

    A company director must not accept third party benefits offered to them, whether as an incentive or a token of appreciation for specific decisions made.

    However, if accepting a third-party benefit does not create a conflict of interest or compromise the director’s independence, it may not be considered a breach.

    Directors should exercise caution and ensure their actions align with the company’s best interests and ethical standards. Transparent communication and proactive disclosure of potential conflicts are essential to maintain trust and integrity within the organisation.

  8. Declare any interest in proposed or existing company transactions or arrangements.

    They must declare to the rest of the directors the extent of any interest, transaction, or arrangement they have (directly or indirectly) with the company.

    No infringement will be recognised if —

    • A conflict of interest is not likely to occur due to the reasonable analysis required to determine such a conclusion regarding the transaction.

    • An interest has not been declared because a director is unaware that they possess the interest or that the other directors are aware of it.

    Related: How to Register for Self Assessment Tax Return Using HMRC SA1 Form

  9. What is the process of appointing a new company director?

    Appointing a director during the formation process is simple. As part of the company registration process, you’ll only need to provide the following details:

    Simply enter these details in the appropriate sections of your application to complete the appointment.

    However, if you wish to appoint a director once a company is established, you will need —

    1. A letter of consent by the appointee confirming their agreement to act as a director.

    2. An ordinary resolution (passed either during a general meeting or by a written resolution) of the members approving the appointment.

    3. Compete form AP01 Appointment of Director and send to Companies House within 14 days of the appointment. In the form, you’ll be required to provide the following details —

      • Company name

      • Company registration number (CRN)

      • Date of appointment of new company director

      • Title, full forename(s), and surname, including any former name(s)

      • Date of birth

      • Residential address

      • Service address

      • Occupation

      • Nationality

    4. Update the company statutory registers to reflect the details of the new director.

Insight

The process of making director appointments following company formation is typically detailed in the articles, as the Companies Act does not specify these procedures. Consequently, in many companies, director appointments can be approved by the existing board of directors rather than by the members.

If the appointment pertains to a corporate director, you will need to complete form AP02 with the following details —

  • Company name

  • Company registration number

  • Date of appointment

  • Registered name and number of the corporate director

  • Registered office or principal address

  • Place of registration place

  • Legal form and governing law (for non-EEA corporate directors)

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What is the process of removing a UK company director?

The process of removing a UK director can vary depending on whether it’s by resignation, board resolution, or court order. However, it must always be per the provisions of company law, articles, members agreement, or any other constitutional document.

Removal by resignation

If a person resigns from their director position, the company must inform Companies House using form TM01 within 14 days of their resignation.

After that, the company must update their statutory registers to reflect the resignation.

Removal by articles of association

In addition to resignation, a company’s articles may outline specific procedures for removing a director. These procedures typically provide scenarios and criteria for removing a director from their position. Common scenarios outlined in the articles may include

  • The articles may specify that a director can be removed by a majority vote of the shareholders at a general meeting.

  • Alternatively, the articles may empower the board to remove a director through a board resolution. Depending on the provisions of the articles, this may require a majority vote of the board members present at a board meeting or through written resolution.

  • The articles may stipulate certain conditions or terms of office for directors. If a director breaches these terms or fails to fulfil the directors’ duties outlined in the articles, the company may initiate removal proceedings based on such grounds.

When removing a director, companies must act in compliance with the procedures outlined in UK company law, corporate governance standards and their articles. Failure to follow these procedures may result in legal challenges or disputes regarding the validity of the removal.

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Roles and Duties of the Board of Directors

he board guides the company’s strategic direction and overall governance. Their responsibilities extend beyond day-to-day operations and encompass long-term planning, decision-making, and ensuring the company’s success.

Some key roles and legal duties of the board of directors include —

  • Provide strategic oversight of the company’s activities by setting goals, defining objectives, and ensuring its activities align with its long-term vision and mission.

  • Ensure effective business planning, including developing and approving strategic plans, budgets, and key performance indicators. They monitor the implementation of these plans and make adjustments as necessary to achieve desired outcomes.

  • Draw on their diverse expertise and industry knowledge to provide valuable strategic advice and guidance to the company’s executive team and staff.

  • Recruit and appoint other board members to meet the business’s evolving needs. They seek individuals with diverse backgrounds, skills, and experience who can contribute effectively to the board’s decision-making and governance processes.

  • Bring industry-specific knowledge and expertise to the table, providing a strategic advantage to the business. Their deep understanding of market trends, industry dynamics, and the competitive landscape enables informed decision-making and helps the company stay ahead of the curve.

By fulfilling these roles and duties, the board plays a critical role in steering the company towards success, fostering innovation, and ensuring sustainable growth over the long term.

Finance Director Duties Under the Companies Act

The Companies Act provides a legal framework for UK companies’ governance and operation. While it doesn’t explicitly define the roles and responsibilities of a financial director, it sets forth overarching duties that apply to all directors, including those with financial oversight. These duties encompass various aspects of corporate governance, financial management, and accountability.

However, for companies that have an office of a financial director, their primary duties and responsibilities may be —

  • A fiduciary duty to act in the company’s best interests.

  • Oversee financial reporting obligations, tax compliance, and adherence to corporate governance standards.

  • Prepare accurate and timely financial statements, budgeting, and forecasting and ensure sound financial management practices.

  • Identify and manage risks hat could impact the company’s financial stability or reputation.

  • Provide financial insights and analysis to support strategic decision-making, such as investment planning, capital allocation, and business expansion initiatives.

  • Facilitate financial transparency and accountability to the board and members, ensuring that financial information is accurate, reliable, and understandable.

What Is the Difference In Functions Between a Shareholder and a Company Director?

A shareholder is an individual or entity owning a portion or all of a company’s stock. Shareholders appoint directors to manage day-to-day business activities and finances, ensuring smooth operation and strategic direction.

A company can have one individual as its shareholder and sole director. Alternatively, it can have multiple shareholders and directors during its formation and at any time thereafter.

What are the directors’ duties when a company is insolvent?

When a company faces insolvency, directors bear crucial duties to mitigate further harm and adhere to legal obligations. Failure to fulfil these duties may result in personal liability for company debts and potential disqualification from future directorship roles.

In liquidation, directors must —

  • Take immediate steps to stop all trading activities

  • Protect any company assets, such as machinery and stock and collect any outstanding debts owed to the company.

  • Convene a shareholder meeting to nominate an insolvency practitioner and pass a resolution to wind up the company, which requires 75% approval of the members.

  • Engaging an insolvency practitioner and providing reports to creditors.

Additionally, directors must repay overdrawn directors’ loan accounts, observe creditor duties, and actively cooperate with the insolvency practitioner throughout the process.

What Is the Difference In Functions Between a Company Secretary and a Company Director?

Directors appoint a secretary to assist with administrative duties, relieve the directors’ workload, and enhance overall operational efficiency. While many of the directors’ tasks can be delegated to the secretary, it’s important to note that the legal responsibility for these duties ultimately rests with the directors themselves.

What Is a Corporate Director?

A corporate director is a term used to refer to a company or any other corporate entity appointed to serve as the director of another company. In a private company, multiple corporate directors can be appointed alongside at least one individual director, as mandated by regulations. Appointing corporate directors can be advantageous, especially for newly registered businesses.

What Details of a Company Director Can Be Found on the Public Record?

The UK Registrar of Companies discloses the following details of directors on the public record —

For Natural Directors —

  • Companies House register lists the director’s title, complete first name(s), and surname. It also includes any previous names the director may have used.

  • The director’s nationality is disclosed, providing insight into their background.

  • Their service address is public, allowing stakeholders to reach them if necessary.

  • Companies House provides the director’s date of birth, which can help verify identity and understand their age and experience.

  • The date the director was appointed to their position within the company is recorded, indicating their tenure.

  • Their profession or occupation is published, offering insight into their expertise and background.

For Corporate Directors

  • The location where the corporate director is registered is disclosed, providing information about its jurisdiction.

  • Companies House lists the corporate director’s registered name and number (CRN), facilitating identification and verification.

  • The primary address of the corporate director is provided, allowing stakeholders to contact or locate the entity if needed.

When made available on the public record, these details promote transparency and accountability in corporate governance, enabling stakeholders to make informed decisions and maintain trust in the companies they work with.

How to perform a director search on GOV.UK

To perform a director search, you will need to access the Companies House search service and follow the steps below —

  1. Go to the “Find and update company information” service on GOV.UK: https://find-and-update.company-information.service.gov.uk/

  2. Enter the director’s name in the provided search field.

  3. Once the list of directors with that name appears, use the date of birth to confirm the individual’s identity.

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