Every limited company is different. Some may be run by a board of experienced senior members with (at least) one director, and others are run by one person who takes on the role of the sole shareholder and company director.
Whatever the structure, the role of the company’s director doesn’t change – they make sure everything stays afloat.
While it’s an exciting step in your career, it’s also important to understand what the position entails, along with your new responsibilities. We’ll look at all of these in this post, along with how you can be appointed as a company director.
What is a company director?
Every company must have at least one director, but some businesses have many – sometimes referred to as a board of directors.
To put it simply, directors are the people responsible for running a company, setting and meeting targets, and making sure it complies with any relevant rules. It’s a rewarding role, but it’s also a lot of work.
As well as ensuring that the company runs correctly (and successfully), and that any employees are happy, there are some core responsibilities that apply to you under the Companies Act 2006, which you’re legally obliged to follow.
You’ll abide by the company’s constitution
Everyone has rules they need to follow – even company directors! It’s your duty to make sure that everything you do for the company is in accordance with the company’s articles of association. These are the guidelines set out by a limited company to explain how it should be run, and they’re agreed upon by the director(s), company secretary, and other members.
They’ll often outline what’s expected of your role within the company, and help you understand the extent of your authority.
Promote the company’s success, always!
Company directors are there to promote the company’s success, using their influence to network and inspire others. In this role, you need to consider things like:
- Consequences: Every decision you make will have consequences for your business, so it’s important to take the time to consider what the impact will be, both in the short term and long term. Using your company’s financial reports will help you to analyse the current performance and create more accurate projections.
- The interests of your employees: It’s vital to ensure your employees are happy and safe within their working environment. As an employer it’s also important that your company acts in their best interests.
- Maintaining relationships: Always stay on good terms with your suppliers, customers, and the people in your industry. You never know where your next client or contract is coming from, for a start!
- The community and environment: Are you thinking about the impact of your surroundings?
- Company reputation: Always maintain high standards of business conduct, and stress that to HR and your employees.
- Staying fair: As the director, you’ll be expected to treat every member of the company fairly.
Stay independent
It’s essential that you don’t allow yourself to be overly influenced by other people’s opinions. You can accept advice, of course, as long as nobody is swaying your decisions or dictating what you do next.
Use your skills and experience
As a company director, you’ll be expected to perform to the best of your ability. That said, everyone makes mistakes, so don’t be afraid to learn from them! Everything you learn or know is another tool you can use to help make your company a success.
Avoid any conflicts of interest
It’s a common factor in most contracts and agreements, but as a company director it’s even more important that you avoid situations where your loyalties may be divided – especially if there are other people in the business to think about. This goes further than just you; you also need to consider the position of your family members.
Be honest if there’s a company transaction you’ll benefit from. For example, if your company plans to sign a contract with a business owned by a family member of yours, you need to let the other directors and members know.
This need for transparency is one of the reasons why, as a director, your details are publicly available through Companies House, and anyone can see which companies you’re involved in.
Avoid benefits from third parties.
In most cases you’ll need to decline any benefits offered to you by a third party if their given purely on the basis of your position as a director. You may be allowed to accept some benefits if there’s clearly no conflict of interest, but it’s best to ask your company members first. You don’t want to be accused of accepting bribes!
Visit the GOV.UK website to learn more about what’s expected from company directors.
Can anyone become a company director?
The good news is that almost anyone can be a company director, although getting your foot through the door is tough unless it’s your own business. From a legal perspective you won’t be permitted to become a company director if you’re:
- Under 16
- Have an undischarged bankruptcy
- Are disqualified from becoming a director
A company can also become a director of another company, as long as there is at least one other human director.
What’s the difference between a shareholder and a director, and can I be both?
You can be both, or you can be one and not the other. It all depends on the type of involvement you want in the company.
Shareholders, often referred to as ‘members’, are the company’s owners. They normally own at least one share which means they own a percentage of the business and, depending on the types of shares they own, are entitled to a portion of the company’s profits in the form of dividend payments.
Shareholders usually also have the right to vote on important business decisions, such as appointing or removing a director, but this is the most involvement they’ll typically have.
A company director is involved in the everyday running of the business. They take a much more managerial role – employing staff, managing payroll, and organising shareholder meetings. They’re also responsible for both paying Corporation Tax and ensuring that the company submits its Company Tax Return.
If you’ve started your own business, you’re likely to have taken on the role of both. As time goes on you might issue shares or appoint other directors – and, further down the line, you may be able to step away from your role to focus solely on something else.
How do directors pay themselves?
Unlike shareholders, directors can receive a salary from the company which allows them to be much more flexible with how they pay themselves, splitting their income between a salary and dividends. There are rules about how this is managed though, so you can find out more by checking out our guide on how directors pay themselves.
How are company directors appointed?
Appointing a company director is fairly simple, but you’ll need to document the process. If you’ve just started up your own limited company, you can appoint yourself as a director, but if it’s a going concern the other members will need to hold a meeting and come to a majority vote in order to agree the appointment.
The person appointed will need to sign a letter of consent confirming that they accept the position, and the company will need to confirm the appointment to Companies House using an AP01 Appointment of director form either online or via post.
Don’t forget: According to the Companies Act 2006, a private limited company must have at least one director, and a public limited company needs a minimum of two.
As a company director, you’ll need to make sure you’re on top of everything – including bookkeeping! Sign up and try Pandle for free today.
