Directors can be liable to penalties if information is not sent to Companies House on time. They must approve the annual accounts and are also responsible for all the general day to day running of the company including matters such as health and safety. Acting improperly can lead to fines, disqualification from being a director, personal liability for the company’s debts or a criminal conviction.
Appointment of Directors
Private limited companies must have at least one director and public limited companies must have at least two. If a limited company only has one director, the director must be an actual person. In general anyone can be a director, but all directors must be aged at least 16. A director must also not be disqualified by the court from acting as a director and must not be an undischarged bankrupt – if you are, you need the court’s permission.
The Articles of Association set out the rules for how the company is to be run including for example how many directors there should be, how long they can serve and what happens at the end of their term.
Other responsibilities of Directors
Failure to carry out some of these duties, such as where health and safety is concerned, can result in a criminal conviction.
Disqualification of Directors
Directors can be disqualified for any of the following…
- allowing the company to trade while insolvent;
- not keeping proper accounting records;
- failing to prepare and file accounts;
- not sending returns to Companies House;
- failing to send tax returns and pay tax.
In some cases, the directors can face criminal charges, fines or be made personally liable for the company’s debts. Disqualification proceedings are handled by the courts and disqualification can be for between 2 and 15 years.
While disqualified, you must not: be a director of any company nor act like a director – even without being formally appointed influence the running of a company through the directors be involved in the formation of a new company ignoring a disqualification order is a criminal offence. For that you could be fined and sent to prison for up to two years.
Failure to properly comply with director responsibilities can lead to the following penalties…
- You can be personally liable for illegal acts such as those beyond your powers.
- You can be liable for company debts incurred through fraudulent or wrongful trading. Wrongful (or even fraudulent) trading occurs when you allow the business to carry on and run up debts when you know or should know there is no reasonable prospect of the company being able to repay them. Just because you are making losses does not necessarily mean it is wrongful trading but all circumstances need consideration.
- If as a director you disagree with the decisions made by the board as whole you should ensure this is noted as you can still be joint and severally liable for decisions taken as a collective.