What is the role of a limited company director?

Limited company directors are appointed by the company’s shareholders. Put simply, they are the management team working on behalf of the owners.

What does a limited company director actually do?

The role of a limited company director is to oversee the effective and compliant running of the company, while acting in the best interest of the shareholders.

Whether you are considering accepting the role of a limited company director or forming your own limited company to start IT contracting, there are a few aspects that you do need to consider. Let’s take a closer look, writes Christian Hickmott, managing director of Integro Accounting, an accountancy specialist for IT contractors.

Different types of directors

Limited company directors have many different titles, some of the most common are:

• Managing Director

• Finance Director

• Operations Director

• Marketing Director

• Technical Director.

The day-to-day responsibilities of different directors vary considerably; and when appointed as a director you’re given a department to run that aligns with your skill set.

That said, all the directors are responsible for running the company together, as a board of directors.

Director duties – the cornerstone of the role of a limited company director

The role of a limited company director is entrenched in law in the Companies Act 2006. Sometimes referred to as “fiduciary duties,” there are seven directors’ duties laid out in the act. They are as follows:

1. Duty to act within powers

A limited company director must act in keeping with the company’s constitution and use their powers responsibly.

2. Duty to promote the success of a company

Directors have a duty to act in good faith and in the best interests of the shareholders. If the company is struggling financially and perhaps insolvent, then the situation changes slightly, and the directors have a duty to act in the best interests of the company’s creditors.

3. Duty to exercise independent judgement

This one is exactly as it says on the tin, but what does ‘exercise independent judgement’ mean in practice?

Imagine you are a technical director sitting in a board meeting while the finance director presents the latest financial information. If you suspect that the ‘FD’ has made a mistake that could have a significant impact on the company, you need to speak up.

Sometimes this means making a nuisance of yourself and asking questions until you are comfortable with the information! Phrases akin to “it’s not my department” simply won’t cut it, and turning a blind eye could land you in legal hot water!

4. Duty to exercise reasonable care, skill and diligence

Directors must act with the care, skill and diligence that an ordinary person would expect someone in their position to demonstrate.

For example, the bar would be set higher for a qualified accountant on finance matters compared to other members of the board with different specialisms.

5. Duty to avoid conflicts of interest

Put simply, this means that you should not have dealings outside of the limited company that could cloud your ability to make the right decision for the company.

6. Duty not to accept benefits from third parties

It is hardly surprising that avoiding bribes would be part of the role of a limited company director!

Fortunately, the act does make allowances for accepting small gifts, such as from a client saying ‘thank you’ for a job well done.

7. Duty to declare interest in proposed transaction or arrangement

This is again related to conflicts of interest. For example, if a director owned a different business that was able to supply services to the company, they would have a duty to declare that they own the supplier business.

A business relationship could still go ahead – it just needs to be declared and approved by the board.

What if I am the sole owner and director of a limited company?

If you run your own one-person limited company, often referred to a Personal Services Company (PSC), you may think ‘Surely the role of a limited company director isn’t the same for me?’

In short, it is the same, and you do need to be careful to keep good records that demonstrate that you have at all times made company decisions in line with the legal duties of a director.

That said, if you abide by the seven duties outlined above; keep good records; and act with integrity and transparency at all times, then you will have grasped the role of a limited company director.