What are a director’s “annual” responsibilities?

by Redmans on December 11, 2012

  • SumoMe

Directors of a company in the United Kingdom have a great deal of power to control the decisions and long-term direction of their company. They deal with the profits and capital of the business and they therefore have significant reciprocal duties under the Companies Act 2006 which attempt to ensure that the financial position of their company is as transparent as possible. In this article we’re going to take a look at what those responsibilities are and what the potential consequences may be if they’re not complied with. We’ll do so by addressing the following:

  1. What are the directors’ annual responsibilities?
  2. What are their duties relating to company accounts?
  3. What are their duties relating to the annual return?
  4. What are their duties relating to dividends?

What are the directors’ annual responsibilities?

Directors have, generally, three “types” of annual responsibility:

  1. To update and submit the company accounts
  2. To update and submit the annual return
  3. To make recommendations relating to dividends

What are their duties relating to company accounts?

Under s.394 of the Companies Act 2006 the company must keep adequate accounting records which give a “true and fair” view of all of its assets, liabilities and so on. It is the directors’ responsibility to ensure that full accounts are produced for each financial year and the directors must not approve these unless they are satisfied that they give a true and fair view of the company’s position. Equally, a directors’ report must also be completed which details the state of the company and its compliance with the company’s legal and corporate social responsibility standards.  Unless the company is a “small company” the directors must also ensure that a “Business Review” is included in the directors’ report, which gives a detailed review of the financial state of the business.

The above reports must be circulated to all shareholders. Companies must also file the reports at Companies House for each financial year unless they are a small- or medium-sized business, whereupon they can file “abbreviated” accounts.

What are their duties relating to the annual return?

The directors must ensure that the company’s annual return is completed and sent to the Registrar of Companies every year within 28 days of the “return date” (the anniversary on which the company was incorporated). Form AR01 should be used for this. There is a small fee for the electronic and paper submission of the form to the Registrar. The Registrar of Companies is the official responsible for Companies House (currently Gareth Jones).

What are their duties relating to dividends?

The directors have a responsibility to recommend whether payment of a dividend should be made to the company’s shareholders if there are sufficient distributable profits (what this means will be tackled in a later post).

Redmans Solicitors are employment solicitors and business solicitors based in Richmond, London.

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