There can often be confusion over what the role of a director is in a limited company. Many people assume that a director must also be one of the owners of the business, however that is not necessarily the case.
Whilst it’s common practice for a director to also own a company, sometimes, directors are simply employed to oversee the smooth running of a business and have no claims to its ownership. The ownership of a company is decided entirely on the shareholding. Only a shareholder has any legal ownership or entitlement for a business.
Whilst it’s possible to be both a director and shareholder, directors do not HAVE to be shareholders and shareholders do not HAVE to be directors.
A director’s responsibility therefore, is purely to oversee the running of the business and ensure it meets all of its legal requirements. Often a director will also be in control of how the business operates and will have responsibility for some staff members. However, that doesn’t have to be the case, as many directors are mostly silent and allow others to run the business.
There are four main areas that the directors are legally responsible for. The tasks relating to each can be delegated to other members of staff but ultimately the director must ensure they are done. The areas are….
Complying with health and safety regulations – The director must ensure proper risk assessments are carried out and that the business complies with all current health and safety regulations. The extent of which, will depend entirely on the type of business that is operating.
Complying with all tax obligations – Company directors must ensure the business complies with and pays its various taxes including, corporation tax, VAT, and National Insurance contributions.
Complying with employment law – If the business employs staff then it will be up to the directors to ensure that all rules and regulations for employers are abided by, and that the necessary insurance is in place. Obligations can include things such as anti-discrimination laws, grievance procedures and pension schemes.
Complying with obligations to Companies House – As part of being a limited company, directors must ensure that the relevant information is passed to Companies House as and when it’s needed. This includes regular requirements such as annual returns and accounts, but also includes more irregular occurrences such as changes to shareholdings or directorships.
As long as the director is ensuring all of the previously mentioned obligations are complied with, then they will be ensuring they meet their minimum legal requirements. However, it is natural that many companies will expect more from a director, such as providing support and advice to those working in the business.
Because directors have legal responsibilities, there are a few restrictions on who can be a director. For example, directors must be aged at least 16 and cannot have any un-discharged bankruptcies, unless they have been given permission by the courts to act in these circumstances. You also cannot be a company director if you are currently disqualified from being one.
Other than that, anyone can be a director of a company but they must accept they are required by law to take on the kinds of responsibilities discussed in this video.