It’s worth it but there’s some things you need to do

A lot of managers or upwardly mobile and ambitious workers often think that being a director of their own company would be the pinnacle of their working careers. 

The dream of personalised parking spaces and financial dividends is a strong motivator for many but in reality being a director is as specialised a position as any other within a business. 

In smaller companies directors often have to juggle their legal duties with being a full time employee too so it’s a position and responsibility that requires commitment, integrity and hard work. 

What legal responsibilities does a director have?

Directors responsibilities generally fall under four separate categories:

  • Financial 
  • Trading
  • Fiduciary
  • Administrative  

Financial duties

Financial duties are meant to be followed to ensure the proper management and control of a company’s finances. This isn’t an exhaustive list of every potential duty that could fall under their remit but will cover most of the common responsibilities and decisions they can find themselves facing while running a business.

  • Keep accurate and complete financial records

Directors have to make sure that all the financial records for a business are accurate, complete, up to date and compliant with all relevant accounting standards and regulations.

  • Prepare financial statements

Making sure that company financial statements give a true and fair view of the company’s financial position and performance. 

  • Manage financial risks appropriately

Directors have a duty to identify and manage financial risks that could affect the company’s health including risks to credit and liquidity such as interest rate rises and penalties etc.

  • Budgeting and forecasting

Directors have to have oversight of the budgeting and forecasting process to make sure that the company’s financial resources are always allocated effectively and that all financial obligations are met.

  • Monitoring cash flow

Directors have to keep an eye on the cash flow of a business to ensure there are no bottlenecks that could cause problems such as not being able to meet bounce back loan repayments or other arrears.

  • Ensure compliance with tax laws

Making sure that the business is not in breach of any rules or laws and that all due taxes are paid on time and in full.

  • Manage stakeholder relationships

Directors have to create and keep good relations with the various stakeholders a business has including shareholders, staff, lenders, creditors and others to ensure they are kept informed of the financial position and performance of a business. 

Directors have a crucial role in ensuring that their company’s financial affairs are managed in a responsible and transparent manner and that the business can meet and achieve its financial objectives in a legal and sustainable way. 

Trading duties

Directors have mandatory legal duties as well as ethical considerations when it comes to overseeing trading in a business’s shares as well as overseeing its general transactions. 

  • Duty to disclose

A director has a duty to disclose any material information about the business that could affect the value of its share. This includes any information about its financial performance, operations or anything else that could affect its value. 

  • Good faith

Directors must always act in the best interests of the company and its shareholders. This specifically includes avoiding any actual or perceived conflicts of interests to ensure their actions are not motivated by personal gain. 

  • Insider trading

Directors must not engage in insider trading which is using confidential company information. This also includes passing the information on to others to gain from.

  • Lawful

Making sure they are not wilfully wrongfully trading or fraudulently trading.  Wrongful trading is when a business has no reasonable prospect of avoiding insolvency but continues to trade.

Fraudulent trading is even more serious and occurs when the business of the company is carried out with the intention of defrauding creditors. 

Fiduciary duties

These are the legal and ethical obligations directors owe to a company, its shareholders and their colleagues. 

  • Loyalty

A director has to act in the best interests of the company and its shareholders at all times. This includes avoiding conflicts of interests and disclosing any personal interests or relationships that could affect their decision making.

  • Duty of care and good faith

Directors must exercise reasonable care, skill and diligence in carrying out their duties.  This includes but is not limited to staying informed about the company’s operations and strategies, making informed decisions and seeking external advice when and where necessary.

They should also act with honesty and integrity avoiding self-dealing, fraud and any other forms of misconduct.

  • Act within their authority

Directors must act within the scope of their authority at all times as defined by the company’s articles of association and any other applicable laws and regulations.

  • Duty to promote success

All directors must act in a way that promotes the long-term success of the company taking into account the interests of shareholders, employees, customers, suppliers and other stakeholders.  

While this might sound obvious, the duty is designed to discourage extreme financial and other risk taking that could place the future viability of a business in jeopardy.

Administrative duties

Many directors also work as employees of their companies but all have certain administrative duties that have to be executed and adhered to.  

Overall they are responsible for the effective management of the company and ensuring it operates efficiently, ethically and in accordance with its stated mission and goals. 

These duties with a wide range of responsibilities include:

  • Overseeing day-to-day tasks and processes
  • Developing and implementing policies, procedures and training
  • Creating budgets and regular financial procedures
  • Ensuring compliance with all legal and regulatory requirements including submitting documents to Companies House and logging minutes of meetings and decisions taken
  • Managing and supervising employees including performance evaluations and discipline
  • Communicating with stakeholders, shareholders, customers and vendors
  • Arranging annual statements and meetings if necessary
  • Reviewing and approving contracts and arrangements
  • Representing the business to peers, the public and media

Chris Horner, Insolvency Director with BusinessRescueExpert, said: “Being a director of a business is one of the most challenging but rewarding positions anybody could occupy. 

“Several approaches to the job can be equally effective and successful but one thing that is required is a commitment to the business and to following the rules.

“Because directors have certain organisational and legal responsibilities, the best thing they can do is to always make sure that they document their actions so they have a record of what was done and when. 

“If a business goes into administration or liquidation, the insolvency practitioner overseeing the case will look into the actions taken by directors to see if they contributed to the events or if there is any element of criminality involved. 

“By having a documentary record of decisions, they can answer any questions quickly and authoritatively and provide the practitioner with the evidence.  This will go a long way to allowing them to declare there are no areas for concern regarding the conduct of directors.

“With financial and legal penalties available including fines and disqualifications, this is particularly important for them to understand and start documenting if they haven’t already.”

Fortunately for any aspiring or active director, there is always a source of impartial help and advice available to them. 

We offer a free initial consultation for any director or business owner that wants to get in touch with us to talk about how they can improve their company’s performance or even their own. 

They might discover options and pathways they hadn’t previously considered that could lead to a better 2023 than they had believed was possible.  

One of the key skills of a director is making the right decision at the right time – and the best thing about this one is the right time is whenever they decide to get in touch.