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As David Marsh from Dulwich put it so succinctly: “I don’t  know whether it’s worth being a limited company or not and I certainly don’t understand what it all means with regards to director responsibility!”

I am going to try to keep this as simple as possible and keep the majority of the information in bullet points for ease of reading. Here goes…

The basics

– All companies must have officers i.e. for a limited company there must be at least one director and one company secretary (c.s.)
– The directors and the c.s. have to manage the company’s trade, accounts, business etc in accordance with legislation.
– The c.s. is responsible for the administration of the company e.g. ensuring returns are on time and adhering to guidelines laid down by the Companies Act 1985.

The big question is do you really need to be a limited company?

Your business may be running as a sole trader, or if you work with someone on an equal basis a partnership agreement may suffice.  A limited company means that the company (and not you) is a legal person in it’s own right and it is completely separate from those who run or own the business and therefore it has limited liability. Some people believe that it is “safer” to have a limited company as if there was a problem with a faulty garment for example and a client decided to take you to court it would take the company to court not you.

How do I set up a limited company?

Some people will seek legal or professional advice first before setting up a limited company – this is a personal choice. If you decide that a limited company is right for you then you can buy a ready-made company from a company incorporation agent or you can incorporate a company yourself. There are two booklets from Companies House that will help you Company Formation and Company Names (www.companieshouse.gov.uk). You will need to submit an article and memorandum of association and we have enclosed a free example of this item in this months issue. Have the appropriate forms submitted and signed by a recognised body e.g. Justice of the Peace or a solicitor and then send all the information complete with a small fee to Companies House. The company will then have an incorporation number which is required to set up a bank account.

What is the role of a Company Director?

The director must ensure that all statutory documents are sent on time to the Registrar e.g.
– submission of end of year accounts
– annual return (Form 363)
– notice of change of directors or secretaries (Form 288)
– notice of change of registered office (Form 287)
– Accounts which include the following unless the company is medium-sized, small or audit-exempt
– Directors’ report signed by a director or the company secretary
– A balance sheet signed by the director
– A profit and loss account (or income and expenditure account)
– An auditors’ report signed by the auditor
– Notes to the accounts

For help on the above areas there is a booklet Accounts and Accounting Reference Dates

Can anyone be a director?

The answer is no, e.g. if anyone has been previously disqualified by a court from acting as a company director, the person must not be an undischarged bankrupt, in Scotland you must be over the age of 16 and for a public limited company or their subsidiaries or anybody over the age of 70 unless specifically agreed at a general meeting of the company.

What happens if a accounts or annual returns are not filed at Companies House?

All the directors of the company run the risk of being prosecuted. Failure to deliver documentation is a criminal offence. On conviction a director could end up with a criminal record plus a fine up to £5,000 for each offence.

If the Registrar believes that the company is conducting correct business operations he could strike it off the register an dissolve it. If this occurred all the assets of the company, including bank accounts and property will become the ownership of the Registrar.

Directors can and do get prosecuted. Approximately 1,000 directors are prosecuted each year. Persistent failure to deliver statutory documents may also lead to a director being disqualified from taking part in the management of the company for a specified period.

Will I get fined for late returns?

Most definitely! Starting from £100 for 3 months or less and increasing as the months go on.

AND DO NOT RELY ON BLAMING YOUR ACCOUNTANT –  accountants and financial advisers don’t get prosecuted or penalised for late filing you do!

For further information please contact:

The Registrar of Companies
Companies House
Crown Way
CF14 3UZ

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