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Company Directors’ Responsibilities

Directors in today’s global market are increasingly being held personally liable for their actions that harm their companies, as well as facing civil and criminal liabilities for failing to comply with the procedures and requirements of various laws. Further, there are several Acts, for which the violation thereof can result in criminal sanctions, including fines and even imprisonment. Directors can find themselves subject to criminal sanctions for such minor infractions as late filing or inadvertently filling out a form incorrectly.

By accepting the assignment as a director, the director establishes a contractual relationship with the company based on two distinguishable obligations:

  1. obligations relating to the functioning of the company; and

  2. management obligations.

Both categories are in the exclusive competence of the director. The obligations relating the functioning of the company pertain to all acts aimed at ensuring the operations of all corporate bodies, to which the director is responsible by law or by the Articles of Association of the company. In this context, the following can be included: the obligation to call the shareholder meeting; the responsibility to prepare and approve the draft budget and to convene the meeting for approval. Furthermore, the obligation to keep accounting records; to announce, register and fulfil the duties of the Business Register. The director is prohibited from acting in conflict of interest with the company or in competition with the latter.

The management obligations indicate all acts aimed to achieve the corporate purpose. For example, the obligation to provide the company with an adequate organisational and accounting structure, to guarantee safety in the workplace and to ensure that the company is acting in accordance with the law. From this point of view, the most important obligation is to act with diligence, i.e. to identify and implement all the necessary measures to take care of the interests of the company.

The scope of this obligation is measured on the basis of two criteria:

  1. nature of the assignment, where all characteristics of the company administered – such as size, activity performed, organisational structure and the position held by the director within the administrative body must be considered;

  2. specific skills, according to the particular knowledge of the director, his technical and managerial skills and his actual experiences need to be kept in mind.

In the event of a court judgment, the Judge will evaluate the director’s behaviour based on the aforementioned criteria. The level of diligence required from a long-experienced managing director of a multinational company may be different from that of a director of a private company with small turnover volumes.

If the following conditions are fulfilled, a Director is liable of non-fulfilment or incorrect fulfilment of his obligations:

  • the director has, in the performance of his duties, adopted a behaviour in violation of the duties and obligations provided law or by the Articles of Association;

  • this behaviour caused damage;

  • a causal link between the behaviour of the director and the damage exists (i.e. the damage is an “immediate and direct consequence” of the behaviour).

Actions to enforce the liability of a director of a limited liability company can be raised:

  • by the company itself,

  • by company’s creditors,

  • by individual shareholders and third parties, if the behaviour of the directors caused damage to them;

Directors can minimise their risks by being aware of their duties and responsibilities and ensuring that they are performed prudently and diligently. Among the steps that a director can take to minimise his liability are the following:

  • attend directors’ meetings regularly;

  • ensure that delegated authority is exercised properly;

  • ensure that directors’ decisions are implemented properly;

  • document measures taken to prevent mismanagement

It is notable that the director holds the position of the company’s legal representative according to the Companies House, based on which a lawsuit is in practice often filed together with a lawsuit against the company. For example, in an employee dismissal case, the director may be sued as the second defendant and claiming for compensation due to his authority to make a decision for the aforementioned act on behalf of the company. However, the law sees the director as a legal representative which is granted protection in terms of personal liability to third parties for any act that has been done prudently and diligently within the scope of his authority. By virtue of his legal representation, such action shall be attributed to the company.

If you need any assistance or require further information regarding company directors responsible please contact us on 0870 228 1999 or email us on info@stanleycarter.co.uk

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Your accountant role can be an asset to your business

Retail spending in the UK fell in October 2017 at the fastest pace for any October since 2008. This has been attributed by some to consumers curbing purchases of non-food goods in the face of rising inflation. In addition, there remains the prospect of a 4% business rate rise next year being confirmed in the Budget, which many have predicted could have serious consequences for investment and confidence. Either way, for many small businesses, and particularly smaller retail businesses, the outlook is uncertain and challenging.

At times like this, though, small business owners often look for those best positioned to provide business as well as financial advice. In the past, this may have been the bank manager or their local Business Link when was still operating, but times are, perhaps, beginning to change. In a recent online focus group with small business owners from around the country, when we asked who they would turn to for help and advice about running their business, more than half of our participants cited a small business organisation or network, but nearly a third also mentioned their accountant.

First and foremost your accountant’s role should be to keep your business meeting its financial obligations, whether that is paying appropriate income tax and National Insurance, ensuring you register for and keep track of VAT and paying corporation tax as a limited company, all of which can become increasingly complex and time consuming as your business grows unless managed efficiently. This process, for example, will likely include improving your record keeping so, for example, you can legitimately claim business expenses that can be used to reduce your profits and your tax liability.  Having some form of accounting software or some form of mechanism to keep up to date records of your financial affairs is a major step towards avoiding those sorts of issues. Your accountant will help you with this.  As your business grows and you become an employer, your accountant can look after payroll and even more advanced financial reporting whilst you focus on further growth.

This recognition that an accountant can be valuable for more than just the figures, though, is an interesting development. It points to the genuine contribution that an accountant can make in providing sound support, including general as well as financial guidance, that frees you up to concentrate on your core activity. The accountant’s position as a critical friend can be more than helpful. Moreover, with many small businesses likely to be using a small practice or an individual accountant, each of which is likely to be a small business themselves, owners seem to recognise that their accountant is likely to identify with many of the challenges they are facing or will have experienced them vicariously through the raft of other companies with which they work.

Whatever view you have of how the next few years will play out, one thing is certain and that is that nothing is certain! Now might be the time to find an accountant with whom you feel you can build a relationship and ask them discuss your short, medium and longer term hopes and plans. Ask them to explain how they could support you through the next phase in your business journey.

For for further information you can contact us on info@stanleycarter.co.uk or check our website www.stanleycarter.co.uk

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New month, new blog!

Hello! Welcome to the Stanley Carter blog,  Stanley Carter are corporate services providers, providing day to day company secretarial services support to accountants, solicitors, leaseholders, entrepreneurs and various other clients in the United Kingdom. Our client base is worldwide with particular emphasis on those clients that operate with United Kingdom Corporate entities.

We have skilled, experienced advisors who will be able to keep you abreast of changes in company law and practice, attend to the formalities required to keep good corporate governance and ensure that you have a complete set of statutory records for your company. We will take an active concern in the well being of your company and help you to meet deadlines set by the Companies Act and government regulations for the filing of documents, without the risk of prosecution or penalties. We work hard to deliver a quality service and to provide you, our client, with fast and efficient support. As your company secretary, regulatory compliance is one of our main duties. We need to ensure that your organisation complies with all relevant legislation. This is done by ensuring that the necessary policies are in place, raising awareness of the policies, monitoring compliance and giving advice as and when necessary.