Updated: Feb 25
With so many new businesses being set up at Companies House each year and it being fairly straightforward to set up a Ltd company, it's not unusual for Directors of Ltd companies to not be fully aware of their responsibilities.
Moving from a Sole Trader to a Limited company can be beneficial for many reasons, which we won't go into here, but it is important that you know what you are taking on before you decide to set up a Limited company.
HMRC sets out the following:
As a director, you must perform a set of 7 duties under the Companies Act 2006.
1. Follow the company’s constitution and its articles of association
These are written rules about running the company, agreed by the members, directors and the company secretary.
2. Act in the company’s best interests to promote its success.
This includes, If the company becomes insolvent, your responsibilities as director will apply onwards the creditors, instead of the company. A creditor is anyone owed money by the company.
3. Independent judgment
You must not allow other people to control your powers as a director
4. Exercise reasonable care, skill, and diligence
5. Avoid conflicts of interest
Avoid situations where your loyalties might be divided)
6. Third-party benefits
You must not accept benefits from a third party that are offered to you because you’re a director as this could cause a conflict of interest.
7. Interests in a transaction
You must let the other directors and members know if you might personally benefit from a transaction the company makes.
So that's the formal bit out of the way but there are many practical issues to consider too.
For example, do you know where to go to register your Ltd company with and how to do this? Do you know what information you need to have before you do this?
Are you aware of your ongoing responsibilities as a Director in relation to filing annual accounts at Companies House, filing a confirmation statement, and the reporting requirements relating to PAYE, VAT, and Corporation tax?
If you are going to be employing people or subcontractors, are you aware of your responsibilities as an employer /contractor and do you know what you need to do if the work your subcontractors do falls under the Construction Industry Scheme?
Do you know how to pay yourself and are you aware of the rules relating to director loans, remuneration, and dividends?
If you have some idea of the above, it can all sound a bit overwhelming and you may even decide that these additional responsibilities are too complicated to take the leap from sole trader to Limited company.
On the other hand, if you're not aware of any of the requirements and you start running a Ltd company without understanding what is required of you by law, before you know it you've fallen foul of HMRC, filed late returns, and received penalty notices or worse......You may be fined, prosecuted, or disqualified if you do not meet your responsibilities as a director.
Don't despair. Our specialists have experience in working with start-up businesses and helping them set up. Our checklists and guidance will help you at each stage and we can also provide ongoing support and training. We can help set up accounting systems to keep accurate records which is a key area of responsibility and will help you stay compliant with VAT, PAYE, Corporation Tax.
Don't get us wrong, it's a very exciting time setting up a new business and it should be. We are just so passionate about small business owners doing things correctly and your companies prospering, that we want to support you by helping you put good foundations in place to build from the start.
We believe that with our help, it can still be exciting but you'll also know that you're fully informed and will be meeting your responsibilities as a director.
For more information, contact us on 01293 526859 or email@example.com