What is a company director?

Thinking about starting your own company? If you are registering your business as a limited company, then you will be taking on the role of company director and will need to know what to do.

A company director is one of the most important roles within a limited company and carries responsibilities that you should be aware of. 

Our guide outlines everything you need to know – what a company director is, how to become one, and what you need to know when you are appointed as one.

Top Tip: Before you register, you might want to assess whether a sole trader or a limited company is better for your business. If you’re a freelancer or work independently, there are pros and cons to each.

Role of a company director

A company director is a person who is officially appointed to take on the responsibilities of managing the company’s business activities, and ensuring that all legal and statutory duties are met in line with the Companies Act 2006, and the company’s articles of association. 

Company directors are registered with Companies House and form the board of directors, who are responsible for managing the company’s affairs on behalf of the shareholders. A director is often the founder of the company initially as if there is only you in the company, you will be the sole company director, and the only member of the board of directors.

In larger companies, there is sometimes a chairman of the board, which is an elected member of the board of directors. This is determined by the company’s internal bylaws.

As a company director, your role will involve managing the day-to-day activities of the business and making sure Companies House receive information on time.

Duties will include:

• Keeping company records and reporting any changes to the business
• Ensuring accounts and the Company Tax Return are filed on time
• Overseeing the company’s financial performance
• Making decisions on major company issues, such as investments
• Appointing and supervising the company’s senior management

Specific roles and responsibilities of the company director can vary, depending on the size and type of the company.

Responsibilities of a company director

Most of the company director’s legal responsibilities will follow the Companies Act 2006, which is the legislation that governs the way UK companies must be run and outlines the duties a company director is expected to carry out.

As a company director, you must:

1. Follow the company’s constitution

Every limited company will have articles of association, which lay out the rules for the company and form part of its constitution. A company director must follow these rules, and ensure that they only act within their powers as designated within the constitution.

2. Promote the success of the company

Company directors have a responsibility to act in the best interests of the company, and in a way that most likely “promotes the success of the company”. 

This is a subjective term and is up to the discretion of the director and other board members, but essentially means the director should always be working towards increasing the value and profitability of the company long term and considering the impact of business decisions on employees, the community, environment, and the reputation of the business, amongst other important factors.

3. Exercise independent judgement

A director has to make their own decisions about the company’s future. They must not be influenced by the commands or wishes of others, and while they may seek advice, they must always use their own judgement to make decisions. They are held responsible for their own views and decisions and therefore must have a full understanding of every part of the company.

4. Exercise reasonable care, skill & diligence

A company director must “perform to the best of their ability”. This means that they have an obligation to dedicate their skills and time to the company. They also have a responsibility for the company based on their abilities, so any company failures can be measured against their own abilities.

For example, if you are a qualified accountant, or experienced in sales or business development, but there is a clear failure or neglect in any of these areas, you could be held liable. Withholding skills could be considered a violation.

5. Conflicts of interest

As a company director, you must be careful to avoid conflicts of interest.

A conflict of interest is where you may benefit unfairly from certain relationships or other positions you might have. Your loyalties could also be divided which could cause conflict within the company.

For example, you may be the director of another company which is a competitor, or a family member may be in a senior position at your company, or the director of a competitor company.

The company should be notified of any potential conflict of interest and follow the correct process set out in the company’s articles of association.

6. Third-party benefits

Accepting third-party benefits, such as gifts or hospitality, should be approached with caution. This could be considered a conflict of interest, or even a bribe if there is some kind of action expected as a result.

Receiving benefits simply because you are the director is also not allowed, and any significant benefit that may come to you as a company director must be declared.

7. Interests in transaction

You must also declare any personal benefits that you might have in company deals or transactions.

This can be directly or indirectly – as long as you have some personal interest in the actions of your company, for example, a business deal going through that you stand to personally benefit from outside of the company would need to be declared.

This can also relate to family members or other associates outside of the company who stand to benefit from your actions within the company. 

You must make the declaration before the deal or transaction has begun. If the transaction is already underway, you must declare your personal interest as soon as possible.

If there is a situation where you were unaware of any personal benefit, then you may not be in violation. However, this is at the discretion of the company.

8. Misuse of property

Company directors must not misuse company property, or use company property for their own personal gain. This involves any kind of company asset, including physical assets such as property as well as resources and funds.

For example, using company facilities for personal gain or without approval could be considered a violation. Using funds from the company accounts for personal use would also be a clear violation.

9. Confidentiality

You must be confidential about the company’s affairs, and as the company director, you must not reveal confidential information to competitors or the wider public.

This information is at the discretion of the company but usually concerns details about transactions, deals, or employees that aren’t available to the general public and could cause a conflict of interest if revealed. 

Any violation of these general duties could result in a number of consequences, from your termination as company director to being ordered to pay compensation, or even criminal proceedings. In many cases, faults are a grey area and need to be analysed individually.

What is the difference between a company director and a shareholder?

A company director is responsible for running the company on behalf of its shareholders, and a shareholder is someone who owns all or part of the company. 

A shareholder is anyone who has bought shares in the company, which if it is a public company, could be anyone. As a company director is at the heart of the business and often the founder of the company, company directors are often majority shareholders.

The powers you have as a shareholder depend on the type of shares you have been granted, and there are many types of shares, each with variations on shareholders’ benefits and powers, but normally, shares will be ordinary equity shares – the most common type of shares.

Shareholders have ownership of a portion of the company’s assets and profits, and are sometimes able to participate in voting decisions, depending on the size of the company, the type of shares granted, and the number of shares owned.

What is the difference between a company director and a company secretary?

A private limited company isn’t obligated to have a company secretary, but as your company grows, you may decide to nominate a company secretary as your responsibilities as company director increase. 

A company secretary is a person who assists the directors with ensuring that the company complies with legal and statutory requirements, and files all the correct paperwork. However, a company director still carries the responsibilities of the legal filings.

Who can become a company director?

A company director can be a person or another corporate entity, such as another limited company, a group, partnership or charity. However, a corporate entity cannot be a company director on its own, and there must always be one natural director (a real person) at all times.

Most people can become a company director, however there are a few exceptions. Anyone that has been disqualified by the company’s articles of association is by default not allowed to become the director of the company.

You cannot be an undischarged bankrupt (someone part of a bankruptcy case), or anyone that has been disqualified by the company’s auditor. You must also be at least 16 years of age.

How to add a director to a company

At least one director must be appointed to a company as part of the incorporation process, but as your company grows, you may decide to add additional directors.

Adding a new company director to a company is a simple process.

Firstly, you will need to decide who is going to be appointed as a new director. This will need to be approved by at least 50% of the board members (if there are more than one). 

Once decided, the new company director will sign a letter of consent to state their intention to act as a director.

The final step is to notify Companies House that you intend to appoint a new director. This is carried out with an AP01 form which can be submitted either online or by post.

To appoint a new director, you simply need to provide: 

• The date of appointment
• The new director’s full name
• Nationality
• Date of birth
• Correspondence address (service address)
• Residential address

Appointing a new director will take up to 48 hours from submitting the form.

How to remove a director from a company

In some cases, you may need to remove a company director – but this must be in compliance with the Companies Act 2006.

You can remove a company director for multiple reasons, such as legal issues, conflict of interest, or even simply a loss of confidence. As long as due process is followed, a company director can be removed for any legitimate reason – what can be considered a “just and reasonable cause”.

Companies will often have specific articles of association, bylaws or shareholder agreements about removing a company director, so it’s important to check these before doing anything else.

The removal process is started by shareholders giving a special notice stating their intention to remove the director.

The company then has to give notice of at least 28 days to call a general meeting, where all the shareholders will vote on the proposal. If more than 50% of the shareholders vote yes, then the director will be removed from their position.

Once you have agreed on the director change within the company, you will then be required to notify Companies House of the changes. 

Removing a director from Companies House will require you to file a TM01 form either online or by post to terminate an appointment of a director.  

How many directors does a company need?

A company needs a minimum of one natural director at all times. There is no limit to the number of directors, and often in large companies there will be multiple directors who make up the board of directors.

However, a company can remain with one director and one shareholder forever, and also add as many directors and shareholders as it likes upon incorporation.

What details about a company director are made public?

As a company director, you are required to make some of your details public. 

This will be your:

• Name
• Nationality
• Occupation
• Month and year of your birth date
• Official correspondence address

These details will be put on the Companies House register (often called the public register), which is a database for all company information in the UK. Anyone who wants to do business with your company can then check the register for details.

You must provide Companies House with your home address to be appointed as a company director, however, this is not made public and is only used for administrative purposes.

Many people choose to keep their home address private by using a virtual office address as their official correspondence address if they run their business from home. 

We offer the option of using a virtual office address during the signup process when registering a limited company through Tide.

Wrapping up

Learning the requirements for a company director is crucial for anyone looking to start their own limited company. If you start a limited company on your own, then you will become the company director by default and will need to know what to do. 

Now that you’re familiar with what becoming a company director involves, Tide has everything you need to get your company up and running.

You can register a company with Tide in minutes, and you’ll also get a free business bank account, as well as access to all our business tools.

Top Tip: Thinking about setting up a limited company? We have a guide on everything you need to know about what a limited company is and how they work💡