As a director, you have a responsibility to the company and its shareholders. But what does this mean though? And what does it actually entail?
In essence, it means that you are responsible for almost everything that happens within your business.
If you are the Director, you are responsible for the control of the company. If the company is in business this means you have legal obligations (lots of them) and a duty to uphold standards and abide by the law both internally and externally.
If you fail to meet these legal obligations, you are likely to find yourself personally liable for some, if not all, of the companies debts, fines and/ or penalties.
Nobody wants to deal with unforeseen legal or financial stress, so it’s crucial for directors to stay up to date with what is going on in the company, not just generally, but intricately.
- Knowing any proposed actions or projects that will impact the performance of the company.
- Getting appropriate advice from professional advisers (accountants and lawyers)
- Talking to managers and staff about the performance of the business.
- Ensuring you have up to date access to financial data so you can assess the current performance of the company.
A great way to manage this and keep tabs on the overall health of the business is with dedicated business management reporting. This provides a holistic view of the company and goes beyond a standard financial report. This is not only useful for Directors, but for business tax purposes as well.
As a director you have the following legal (and moral) obligations:
- Act honestly and carefully.
- Know what the company is doing; ignorance is not an excuse
- Make sure the company can pay its debts
- Ensure proper financial records are kept
- Act in the company’s best interest
If the company you are a director of employs people, it is important that the company also abides by all relevant employment and occupational health and safety laws and rules.
One of the major obligations for a director of a company is to ensure that the company doesn’t trade whilst insolvent.
Essentially, a company is considered insolvent when it can’t pay its debts when they are due. If this is happening, the Directors is at risk of being personally liable for the companies debts by letting it trade whilst insolvent, exposing their own wealth and assets to creditors.
If you see signs of financial difficulty, don’t turn a blind eye. The sooner you manage it, the more likely the outcome won’t be severe.
Signs that a company is having financial difficulty can include:
- Difficulty paying trade suppliers and creditors on their trading terms
- Difficulty meeting loan repayments on time and staying within their limits on overdrafts and credit cards.
- Legal action being threatened by creditors for money that is owed to them.
- Suppliers refusing to extend credit.
- The company not paying its tax on time.
Should you ever find your company in this situation it is best to get some advice immediately.
As an expert in company finance and small business accounting, PCR can assist you in knowing your legal and financial obligations and fulfilling directorial duties.
Get in touch with us today and see how we can help you run your business legally, efficiently and effectively while protecting your wealth and assets.