Understanding Director Liabilities for Small Businesses in the UK: A Comprehensive GuideThursday, January 18, 2024
At Ellacott Morris, our services are designed to help and support our clients, ensuring they make the right choices for their business’ stability and success. Part of our role as accountants involves sharing knowledge and checking understanding, therefore confirming that our clients make informed decisions and remain compliant to the many UK business laws and regulations.
In this article we explain the legal responsibilities and potential liabilities of becoming a company director of a UK business, helping those considering this step to do so knowledgeably, and reminding those who already hold this title of the various responsibilities that being a company director entails.
Here are our top ten points that all company directors should be aware of…
- Fiduciary Duties
Directors are entrusted with fiduciary duties to act in the best interests of the company, promote its success, and consider the long-term impact of their decisions. The Wikipedia description of ‘fiduciary security’ explains the importance of this responsibility well… “A fiduciary is a person who holds a legal or ethical relationship of trust with one or more other parties. Typically, a fiduciary prudently takes care of money or other assets for another person.” It’s important to note that this duty mandates directors to exercise care, skill and diligence in their roles.
- Insolvent Trading
We appreciate that no company director wants to consider the possibility of their business becoming insolvent, but directors must be aware of how to behave should the worst happen. Directors have a duty to act in the best interests of the company's creditors if the company becomes insolvent. Trading while knowing or suspecting insolvency can result in personal liability for the company's debts incurred during that time.
- Personal Guarantees
Providing a personal guarantee for a company debt makes a director personally responsible for fulfilling that obligation in case the company cannot. This, alongside all other director responsibilities, is an area where professional accounting advice is invaluable. If this is something you’re considering for your business, speak with one of our business experts at Ellacott Morris.
- Breach of Duties
We recommend that you read this statement very carefully to fully appreciate its personal implications… Directors can be held personally liable for breaching their statutory duties, including mismanagement, failure to act within their powers and a breach of the duty of care.
- Tax Liabilities
Directors may be held personally liable for specific tax liabilities of the company, such as failure to pay PAYE (Pay As You Earn) taxes. This point highlights the importance of running your business efficiently and effectively – something we help all our clients to do.
- Environmental and Health & Safety Compliance
Personal liability may arise for directors if their actions or decisions lead to non-compliance with environmental and health & safety laws. Be sure to understand your responsibilities, and recruit or subcontract the right expertise should your business require it.
- Data Protection and Privacy
Directors may face personal liability for breaches of data protection and privacy laws, especially in light of regulations like the General Data Protection Regulation (GDPR). Do you fully understand your data and privacy responsibilities as a company director? If not, it’s time to improve your knowledge!
- Company Law Compliance
Directors are responsible for ensuring the company complies with company law requirements, including timely filing of annual accounts and reports. Once again, we’re here to support you every step of the way with timely, accurate and commercially beneficial annual accounts and reports.
- Contractual Liabilities
Directors can be personally liable if they personally enter into contracts on behalf of the company and breach those contracts. To mitigate these liabilities, directors should understand their legal obligations, maintain accurate financial records and seek professional advice when needed. It's advisable to avoid trading while insolvent and consider obtaining appropriate insurance, such as Directors and Officers (D&O) insurance, to protect against personal liability. We can help you conduct your contractual obligations in line with your director’s responsibilities – simply speak with one of our team.
- Seek the Right Advice & Support
If you’re busy running your business, you may not have the time to manage all the crucial financial and legal elements too. Therefore, seeking expert advice and support can be key to the success of your company. Don’t try and do it all – our input may not only save your business money, but we pride ourselves on strengthening our clients’ businesses, adding value to their growth and development. We work in partnership with our clients to help them achieve their goals through safe and strategised financial management.
We already support over 500 businesses in Essex, Suffolk and beyond. Let us help you and your company too. Get in touch and let’s explore the possibilities…