Your company is now set up. Your registered office is fixed, your directors and secretary are in place, your shareholders have paid in their money and the rest of the formalities are complete.

You must now carefully check through your responsibilities as a director. This chapter looks at those responsibilities in more depth and includes:

• fulfilling your responsibilities
• wrongful trading
• completing your annual return
• filing your accounts
• notifying changes in your company set up.

FULFILLING YOUR RESPONSIBILITIES

Directors, as guardians of their companies, are appointed to manage the affairs of a company. This includes keeping the affairs of the company within the law and there are some legal requirements of the Companies Act which must be carried out.

Every director has a personal responsibility to see that certain documents are delivered to the Registrar of Companies. They include:

• the company’s annual accounts
• the Annual Return
• notification of any change of directors or their particulars
• notification of any change of secretary or their particulars
• notification of a change of registered office
• notification of any mortgages or charges levied on the company
• notification of any changes in the Memorandum or Articles of Association
• notification of the company going into liquidation or receivership.

If you fail to send in your accounts on time a rising scale of fines is imposed, which can amount to £1,000 in a private company, if the documents are over twelve months late. It only applies to accounts and is known as a late filing penalty. It is payable by the company. Note that there can also be fines levied on a director personally for not delivering accounts, but this would only be as a result of his prosecution for the offence and would be set by the court.

Failure to submit the other documents can also result in fines on the director personally.

Documents have to be sent to:

The Registrar of Companies
Crown Way
Cardiff CF4 3UZ

for companies in England and Wales. There are other offices if you prefer to deliver them by hand and these are in London, Manchester, Birmingham and Leeds.

For companies in Scotland documents should be sent to:

The Registrar of Companies
Companies House
37 Castle Terrace
Edinburgh EH1 2EB

There is also an office in Glasgow for hand deliveries.

A number of companies delegate the responsibilities for sending in documents to their accountants or financial advisers as they usually prepare the accounts and are in possession of the other relevant information. Again beware. It is your job as a director to make sure the job is being done.

Finally, all this statutory information is needed to make it available for public inspection. This enables other individuals or businesses to form a view of a company with which they may wish to deal. It is also part of the protection which is necessary if companies are going to have the benefit of limited liability.

Case study: Dean delegates

Dean has noted the long list of his legal responsibilities and decided that he will delegate these to his accountant. Although his mother is the company secretary she is not fully familiar with company law and is also happy to see someone who is dealing with the company formalities. The accountant explains that the necessary forms will be completed when die accounts are prepared and, although there will be a small charge for the extra work involved, he will see that all the forms are dealt with on time. All Dean has to do is check that the forms do come with the accounts when they are sent to him.

WRONGFUL TRADING

As a director you ought to know if your company is insolvent, ie has no assets with which to pay debts owed by the company. If it is, you are duty bound to declare the company insolvent and go into liquidation, which is the process used to wind up the business of a company.

You also owe a duty to the creditors of your company (ie businesses or individuals the company owes money to) not to continue trading when there is no reasonable prospect of avoiding liquidation.

If the company goes into insolvent liquidation the liquidator may apply to the court if he can prove that you knew, or ought to have known, prior to the liquidation that the company could not avoid taking that course. This is known as wrongful trading.

In these circumstances the court would make you personally liable to contribute to the company’s assets and disqualify you from being a director again for up to 15 years. You will not be liable, however, if you can show that you have taken every step, prior to liquidation, to minimise the potential loss to the company’s creditors.

Further if you knowingly intended to defraud your creditors it is fraudulent trading. You may still be expected to contribute to the assets of the company but may additionally be fined or even imprisoned.

COMPLETING YOUR ANNUAL RETURN

It is the directors’ responsibility to see that the Annual Return (Form 363a, see Figure 01) is sent to the Registrar on time. It is now customary for the Registrar to forward to the company a Form 363 s completed with the information he currently has on his file. This is known as a shuttle annual return. Any alterations to this information have to be completed before signing and dating it and sending it back. This makes it very simple.

The annual return contains the following information:

• the address of the Registrar
• the company number
• the company name

• the type of company (e.g. private company limited by shares)
• the date up to which the return is to be made
• the address of the registered office
• the trade classification (identifying the principal activity by a code number)
• the address where the Register of members is kept
• the name and address of the company secretary
• a list of the directors showing, in each case, their name, address, date of birth, nationality and occupation
• details of the shares issued showing the class, the number and the nominal value
• a list of the members (ie shareholders) which contains names, addresses, number of shares held and dates of transfers if any.

The form, which can be signed and dated by a director or the secretary, is then sent, together with a cheque for £15 filing fee, to the appropriate Registrar.

There is provision on the Annual Return for any alteration in circumstances of directors like a change of address.

Case study: Hannah and Usha fix their dates

Diamond Designs Ltd was incorporated on 13 November, but Hannah and Usha realise that if the company’s year end were to finish on, say, 30 November, that would also be when they hope to be at their busiest, selling hard for the Christmas trade. They decide to opt for 30 June as this will mean dealing with their year end during July and August which are their quiet months. Hannah, as company secretary, sends off Form 225(1) changing the date to 30 June.

FILING YOUR ACCOUNTS

All companies have to keep accounting records and each financial period, normally a year, must send their accounts to the Registrar of Companies.

Accounting reference date

The first accounts of a company start with the date of incorporation and run to the accounting reference date, which is the date decided by the company and which is the most convenient for their year to end (for example, 31 December). The accounting reference date is chosen by sending to the Registrar Form 224 (see Figure 10) within nine months of incorporation. If you fail to choose a date the Registrar will choose one for you. It will be the last day of the month of the anniversary of incorporation.

A company may make up its accounts to a date seven days either side of the accounting reference date which may be useful, for example, for a retail shop which wishes its year to end on a Saturday. The period ending on the accounting reference date must be more than six months and less than 18 months.

You can change the accounting reference date within limits on Form 225(1). This notifies the Registrar that you wish to shorten or extend the current period and will state the new date. But you cannot:

• extend it to more than 18 months
• extend it more than once in five years.

Note that where companies own other companies or a company is directed to by the Secretary of State these rules may be altered.

The accounts

All limited companies must send their Directors’ Report and Accounts to the Registrar of Companies. This must be done within ten months of the accounting reference date and a new company must send its first accounts within 22 months of incorporation.

Your accounts have only to be approved by the directors and signed by one of them. They do not have to be laid before a general meeting of the company’s shareholders nor do they have to be agreed by the Inland Revenue. They should be on white A4 paper with black print.

The Directors’ Report must be signed by an officer of the company (director or secretary) and the Auditor’s Report must state their name and be signed by them.

The accounts include:

• a profit and loss account (or income and expenditure account if the company is not trading for profit)
• a balance sheet
• an auditor’s report
• a directors’ report.

Small companies

There are special rules which govern the way a small company deals with its accounts. To be a ‘small company’ it must meet two of the following three criteria:

• 1.Its sales must not exceed £2,800,000.
• 2.Its balance sheet total must not exceed £1,400,000.
• 3.Its number of employees must not exceed 50.

Small companies may send abbreviated accounts to the Registrar which consist of an abbreviated balance sheet and a special auditor’s report. Above their signature the directors must make a statement saying that they have relied on the exemptions for individual accounts on the grounds that the company is entitled to the benefit of those exemptions as a small company. The special auditor’s report should also state that the requirements for exemptions are satisfied.

In these cases a full set of accounts, with a full audit report, must still be provided for the company members.

The audit

Small companies need not necessarily have an audit. The regulations for exemption are set out in Chapter 7. However, an audit can be demanded by a member holding more than ten per cent of the shares.

Where the company is eligible (ie it has a balance sheet total of not more than £1,400,000) and audited accounts are not needed, the balance sheet signed by the directors must contain statements that:

1. The directors are of the opinion that the company is entitled to the exemption from audit conferred by section 249A(1) of the Companies Act 1985;

2. No notice from members requiring an audit has been deposited under section 249B(2) of the Companies Act 1985, and

3. The directors acknowledge their responsibilities for:

• (a)ensuring that the company keeps accounting records which comply with section 221 of the Companies Act 1985, and
• (b)preparing accounts which give a true and fair view of the state of affairs of the company as at the end of the financial year and of its profit and loss for the financial year in accordance with the requirements of section 226, and which otherwise comply with the requirements of this Act relating to accounts, so far as applicable to the company.

Although you can see it is possible not to have an audit it is preferable as accounts are often used by third parties to assess your business. They are comforted by a clean auditor’s report and the Inspector of Taxes also prefers it. It will cost more however.

A typical auditor’s report where there is no audit undertaken might say:

’As described on the Balance Sheet you are responsible for the preparation of the accounts for the year ended .........., set out on pages ........, and you consider that the company is exempt from an audit and a report under section 249A(2) of the Companies Act 1985. In accordance with your instructions we have compiled these unaudited accounts in order to assist you to fulfil your statutory responsibilities from the accounting records and information and explanations supplied to us.’

You can see what it means to say the directors have the responsibility for the accounts when no audit takes place.

Harry opts for an audit

The management company is likely to have many different shareholders as people move on to live elsewhere and others take their place. Harry believes it is important that everyone involved is happy that the finances of the company, which they will all be contributing to, are seen to be above board and properly checked out. He asks a firm of auditors, different from the auditors who deal with his own affairs, to become advisers and auditors to Smiths Towers Management Co Ltd. In this way all the tenants will feel that matters are being independently checked.

NOTIFYING CHANGES IN YOUR COMPANY SET UP

At the beginning of this chapter there was a list of six changes that must be notified to the Registrar of Companies. There are many more but set out below are some of the ones applying to a small company. The forms have time limits on when they should be sent in.

Occurrence	Time limit	Form
Change of directors	14 days	Form 288
Change of secretary	14 days	Form 288
Change of registered office	on application	Form 287
Mortgages and charges	21 days	Form 395
Alteration to Memorandum and Articles	15 days	Copy of the resolution
Liquidation	15 days	Copy of the resolution

It is a requirement that many important occurrences have to be notified and you would be well advised to seek professional advice when making any fundamental changes to the structure of your company.

Avoiding penalties

Remember to avoid penalties:

• send in forms within the time limit
• all forms must have original signatures and be dated
• forms and accounts must be in a form approved by Companies House and be clear and legible.

ACTION POINTS AND REMINDERS

• 1.You do realise that there are a number of responsibilities that you as a director of a company have and that there are fines for not carrying them out.
• 2.Certain basic forms must be submitted to the Registrar of Companies each year and you should know what they are.
• 3.The forms must be sent to the Registrar of Companies.
• 4.When you hand over the job of completing the forms to your accountant it is still you who is responsible for sending them in.
• 5.If you cannot pay the people you owe money to what should you do?
• 6.The Registrar makes it easy for you to send in your annual return by completing it with the information he has on file. You only have to amend it if necessary.
• 7.Make sure your accounting reference date is suitable for your needs.
• 8.Your accounts should be sent in to the Registrar of Companies with the Annual Return.
• 9.You do not necessarily have to have an audit.