A lot of people know that it can be more tax efficient to run your business through a company instead of as a sole trader. However, it isn’t a step that should be taken lightly. One thing a lot of small business owners don’t know much about is what their responsibilities would be as a company director, and what the penalties could be if they get it wrong.

boardroomHere’s some of the basics.

  • All limited companies are required to have at least one director (PLCs must have at least two);
  • Directors are in charge of running the company;
  • There are some restrictions on who can be a director – they can’t be an undischarged bankrupt, be under the age of 16, and they can’t have been disqualified from being a director by a court.

If you are a director, what are your responsibilities?

You have to ensure that certain documents are prepared and delivered to Companies House – even if you delegate that responsibility to somebody else, the ultimate responsibility still stays with you. The main documents you are likely to need to know about are:

  1. The annual return, which covers key company information including shareholders, directors, registered office, etc.;
  2. Annual statutory accounts, which provide information on the company’s financial results and position;
  3. Notification of changes to the registered office address, or to the company directors or their details;
  4. Allotment of shares, if additional shares are issued in the company.

There are other legal duties that company directors have to comply with, including:

  • Employment law;
  • Health and safety;
  • Checking that the correct amount of tax, National Insurance and VAT are paid.

And what are the penalties if you get it wrong?

Depending on the circumstances, the penalties could range from being disqualified as a director, to criminal charges, fines, or even being made personally liable for the company’s debts.

If you are a company director, or are considering setting up your business within a company, then make sure you spend some time understanding what your responsibilities are. If you don’t think you will be able to comply with them, then you would be much better off as a sole trader!