What you need to know as a company director - CloudCo Accountants

What you need to know as a company director

what to know as a company director

The following is a guide to important things which you need to know as a company director:

Related director agreements

The Companies Act requires that a company may not take part in an arrangement under which another person enters into a transaction that, if it had been entered into by the company, would have required approval under sections 197, 198, 200 or 201, and that person, in pursuance of the arrangement obtains a benefit from the company or a body corporate associated with it, or arrange for the assignment to it of any rights, obligations or liabilities under a transaction that, if it had been entered into by the company, would have required such approval, unless the arrangement in question has been approved by a resolution of the members of the company.

Exceptions apply, subject to satisfying qualifying conditions, some of which relate to levels of expenditure, in the following:

  • Expenditure on company business
  • Expenditure on defending proceedings
  • Expenditure in connection with regulatory action or investigation
  • Expenditure for minor and business transactions
  • Certain intra-group transactions

Records of directors’ meetings

The Companies Act requires a company to keep records of its directors’ meetings. The responsibility for these records rests with the company’s Board of Directors.

The Act requires every company to keep minutes of all proceedings at directors meetings for at least ten years from the date of the meeting. Failure to do so is an offence.

If the minutes are approved by the chairman they are evidence (Scotland, sufficient evidence) of the matters discussed and decided at the meeting. Therefore until proved to the contrary, the meeting is deemed duly convened and held; all proceedings are deemed to have duly taken place and all appointments at the meeting are deemed valid.

While it has been assumed by the law that attendees at meetings have previously attended in person, common practice has permitted directors to ‘attend’ by telephone or video conference. The Act now allows for attendance by telephone or video conference where unable to attend personally. Normal notice of meeting and minutes should be prepared and authenticated.

Directors’ service contracts

Directors are required by company law to have a service contract.


A directors’ service contract, in relation to a company, means a contract under which:

a director of the company undertakes to perform services (as director or otherwise) for the company, or for a subsidiary of the company, or
services (as director or otherwise) that a director of the company undertakes personally to perform are made available by a third party to the company, or to a subsidiary of the company.
The company is required to keep directors’ service contracts or any memorandum of terms at the company’s registered office, or at any place specified under section 1136, as section 229 confers rights on members to inspect a request copies.

Where a director is also the sole member, the company must, unless the contract is in writing, ensure that the terms of the contract are either set out in a written memorandum or recorded in the minutes of the first meeting of the directors following the making of the contract.

Director’s transactions requiring members approval

The Companies Act specifies a number of transactions that require shareholder approval.

1. Where a service contract is, or maybe, longer than two years.

This is a complicated area of the Act and we recommend that advice be sought with regard to long term service contracts.

2. Substantial property transactions.

A company may not enter into an arrangement under which a director of the company or its holding company, or a person connected with such director, acquires or is to acquire from the company (directly or indirectly) a substantial non-cash asset, or the company acquires or is to acquire a substantial non-cash asset (directly or indirectly) from such a director or a person so connected. These provisions apply unless the arrangement has been approved by a resolution of the members of the company or is conditional on such approval being obtained. Substantial is defined in section 191 as an asset that exceeds 10% of the company’s asset value and is more than £5,000 or exceeds the sum of £100,000.

Directors’ Report

One of the requirements of the Companies Act is that the approved accounts must include a directors’ report which includes:

The names of the persons who, at any time of the financial year, were directors of the company.

The principal activities of the company

A business review: Unless exempt the directors’ report must contain a statement to the effect that, in the case of each of the persons who are directors at the time the report is approved, so far as the directors are aware, there is no relevant audit information of which the company’s auditor is unaware, and he has taken all the steps he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company’s auditor is aware of that information.

Loans to Directors

The Companies Act permits a company to make a loan to a director. A loan or guarantee must be approved by a resolution of the members of the company. A resolution giving the necessary approval can only be passed when a memorandum setting out required matters about the loan is made available to the members.

Information to be included in the memorandum:

The nature of the transaction: The amount of the loan and its purpose: The extent of the company’s liability under any transaction connected with the loan. There are some exceptions to the requirement to gain member approval including loans where the aggregate value does not exceed £10,000, or where this relates to a credit transaction, if applicable, does not exceed £15,000 or is entered into in the ordinary course of the company’s business.

Signing of accounts: Directors and Auditors

Who is required to sign company accounts?

Subject to certain exemptions, a company that meets the small company criteria in respect of a financial year is exempt from the requirement to have an audit of accounts for that year.

The conditions are:

  • that the company qualifies as a small company in relation to that year,
  • that its turnover in that year is not more than £5.6 million, and
  • that its balance sheet total for that year is not more than £2.8 million.

It is important to note that there are many benefits and reasons for a company to have an audit. Our Chartered Management Accountants will be pleased to discuss these with you. Contact us for a free consultation.

Companies that are not exempt include:

A public company

  • A company that is an authorised insurance company, banking company, an ISD investment firms or a UCITS management company, or a company that carries on insurance market activity.
  • Dormant companies, subject to conditions
  • A company’s accounts must be signed on the balance sheet by a director as approved by the board of directors.

General duties of Directors

The general duties required of a director are set out in seven sections of the Companies Act.

These duties are:

  1. To act within the powers of the company’s constitution, and to only exercise powers for the purposes for which they are conferred.
  2. A director must seek to promote the success of the company. In so doing he must have regard to: the likely consequences of any decision in the long term; the interests of the company’s employees; the need to foster the company’s business relationships with suppliers, customers and others; the impact of the company’s operations on the community and the environment; the desirability of the company maintaining a reputation for high standards of business conduct, and the need to act fairly as between members of the company.
  3. A director must exercise independent judgment.
  4. A director must exercise reasonable care, skill and diligence that would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the company, and the general knowledge, skill and experience that the director has.
  5. A duty to avoid conflicts of interest in which he has, or can have, a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company. This applies in particular to the exploitation of any property, information or opportunity – and it is immaterial whether the company could take advantage of the property, information or opportunity.
  6. Duty not to accept benefits from third parties where conferred by reason of his being a director, or his doing (or not doing) anything as a director.
  7. Duty to declare an interest in a proposed transaction or arrangement whether directly or indirectly. He must declare the nature and extent of that interest to the other directors. The Act prescribes how this declaration is to be made as well as defining the occasions when an interest need not be declared. Chapter three of Part 10 highlights the requirement to declare in certain circumstances with regard to a declaration of interest in an existing transaction or arrangement as well as the consequences of a failure to declare interest (section 183).

A company’s members

The Companies Act requires that all companies must keep a register of members in which is entered:

  • Names and addresses of the members
  • The date on which each person was registered as a member
  • The date on which any person ceased to be a member

Where the company has a share capital the register should also include the number and classification of shares held and the amount paid or agreed to be considered as paid on the shares of each member. The register should be available for inspection at the registered office or at a place specified in regulations under section 1136.

Where there are more than 50 members a company must keep an index of the name of members of the company.

The register and index of members’ names must be open for inspection to any member without charge or any other person on payment of a prescribed fee.

A company with share capital may keep a branch register of members resident there, if it transacts business in a country or territory which is any part of Her Majesty’s dominions outside the United Kingdom, the Channel Islands and the Isle of Man, and a range of more than 20 countries including, Cyprus, Hong Kong, Ireland, Kenya, Malaysia, Malta, Singapore, South Africa and Sri Lanka. In these circumstances a duplicate register must be available for inspection in the UK.

CloudCo Accountancy Group

CloudCo Group is a Chartered Management Accountancy Firm offering premium accounting services to a range of businesses and individuals from their office in Milton Keynes.

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