Why it’s Important to Understand Directors’ Responsibilities and Duties

Why it’s Important to Understand Directors’ Responsibilities and Duties

It is exciting to be part of the birth and development of a business or company, especially if it is your own. Frequently even simply being offered a chance to sit on the board of a small family business, farming concern, or social enterprise can be accepted without much thought. It is indeed an honour and may yield financial returns, but it is paramount to understand the responsibilities and duties of directors of companies.

It is not simply about the benefits but also the risks of accepting a directorship. As aforementioned, the position may yield a financial return, but on the other hand, many businesses will close down in the first year, and it is thus vital to understand what this may look like and what to do as the director.

Advantages of being a company director

In the UK as a sole trader, you will still have the financial liability associated with the business, but as a company director in a limited company, you will be able to avoid some of these liabilities. It is thus worth looking at converting from sole trading to an Ltd company with you as the director.

Being a company director is a wonderful way to add to and upgrade your professional image. Even as a director or board member of a not-for-profit charity, or social enterprise will serve the same purpose. For many, it’s more about the title than the amount of profits generated and any returns.

As a director, you can avoid some tax implications by paying yourself a smaller salary and then taking more frequent payments of dividends. It is a little complicated, and you will likely need some tax advice in this regard, but as a director, you will be able to increase your earnings and reduce the amount of tax you pay as an individual.

Disadvantages of being a company director

The main disadvantage is increased responsibility and accountability. As a company director, it must be clear from the outset that you will do more work than those below you in the business, and most problems will stop with you. It is the director’s responsibility to prepare and submit proper and audited accounts.

The fiduciary and monetary responsibility is essentially all up to the directors of a company. If the business is facing insolvency, it would be the directors who appoint insolvency practitioners and who would collaborate with them through this process.

Being the person responsible for performance monitoring, hiring and firing, and strategy decisions that impact the entire business can make the role of director a very lonely one, and this should be realised, and a solid team built around you to prevent this.

Concluding comments

There are several pros and cons of being a director of a company. Before you accept this position or even consider it, you are advised to do your research and be clear from the outset as to exactly what you will be responsible for and what your duties are.

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About the Author: Norma G. Price

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