A company’s success depends upon its people. This includes its owners and managers, as well as everyone else who works there.
A limited company may be a distinct legal ‘person’ in its own right, but a company is only as good as its people and requires strategic decision making to operate successfully.
Running a company requires the right people, in the right roles and doing the right thing. In fact, the number one cause of business failure is poor management and company governance.
Here’s a quick guide to who’s who in a UK private limited company:
Confusingly (as always in the land of legal-ease), shareholders may also be called company ‘members’ or ‘stakeholders’.
Shareholders are technically the owners of a limited company. Each shareholder invests in the company by buying shares, and their proportion of ownership is determined by how many shares they own.
A company may therefore have lots of shareholders, or it is possible to be owned by a single shareholder. If there are multiple shareholders, it is advisable to have a shareholders’ agreement in place to confirm how the business is run and what happens if there is a dispute. You can find out more about shareholders’ agreements in our previous blog.
Any individual person or corporate body can be a shareholder. There are few legal requirements, although all shareholders are responsible for:
- Appointing or removing directors
- Determining the rights of directors
- Setting directors’ salaries
- Altering share capital
- Making decisions about significant matters
Company owners are financially responsible for business debts up to the value of their investment. This means that if a company incurs debt, the shareholders must pay the value of their unpaid shares towards the financial liabilities of the company.
In a start-up, family business or other small company, it’s common for shareholders to also be directors, as the people who own the company typically wish to oversee the running of the business.
Under company law, there is no maximum number of directors, although there must be at least one appointed director managing the business and undertaking the daily duties.
‘Directors’ duties’ may be a buzz phrase in company law, but there’s a reason for that. Directors’ duties are big. In fact, they’re so big, we’ve even written a blog about that too.
Essentially, a director’s duties include:
- Managing the day-to-day business of the company
- Determining the strategic and operational decisions
- Setting the company’s vision and objectives
- Ensuring compliance with the relevant red tape and statutory obligations
- Participating in board meetings
- Appointing senior management
- Monitoring the progress of the company
- Promoting the company’s success
These duties are owed to the company itself, who can take enforcement action against any director in breach of their duties. Whilst this may sound strange, remember that a company is owned by the shareholders, and it is the shareholders or the board that may bring a claim against a director breaching their duties.
Penalties may include dismissal as a director, fines or even criminal liability for very serious breaches.
To help directors with their day-to-day duties and responsibilities, they may appoint a company secretary, although it’s not a legal requirement for a private company to do so.
The precise obligations of a company secretary are determined by the directors when they are appointed, and generally involve:
- Maintaining business and accounting records (see our blog on company books)
- Preparing annual accounts and returns
- Managing payroll
- Arranging meetings
- Monitoring financial details
- Appointing auditors
- Reporting changes to regulatory bodies, such as Companies House
If you do decide to appoint a company secretary, their appointment must also be filed at Companies House.
All private limited companies must appoint an independent auditor, unless the company is so small that they qualify as a micro-entity, although micro-entities must still send accounts to their members and file them at Companies House.
The auditor may not be an officer or employee of the company, a partner or employee of such person or have any other conflict of interest.
The directors appoint the auditor of the company each year at a meeting of the company’s members within 28 days of the last company reports submission. If they fail to do so, the present auditor is deemed to be reappointed for the oncoming year.
Auditors are responsible for:
- Ensuring annual reports of the company are correct
- Preparing a report of the company’s annual accounts for members
- Checking that the directors’ report is consistent with the accounts
Once the audit is complete and the audit report is signed by the directors, it must be filed to Companies House within 9 months of the company’s financial period.
Register of companies (Companies House)
Your UK limited company will not be legally recognised until it is registered to Companies House.
Companies House is part of the Government’s Department for Business, Energy and Industrial Strategy and is responsible for handling information about all companies in England and Wales.
- Incorporate limited companies
- Register company information
- Make company information publicly available
- Dissolve limited companies
Although you may not consider Companies House to be part of your company, if you fail to report your company information to Companies House you could be breach of your legal obligations and incur significant fines.
Her Majesty’s Revenue and Customs (HMRC) is the UK’s tax, payments and customs authority which is responsible for administering and collecting taxes.
Your private limited company is legally required to pay their taxes to HMRC. HMRC oversee all forms of taxation, but for the purposes of your company, you are most likely to deal with HMRC in relation to:
- Corporate Tax
- Employment Taxes
HMRC also manage other regulatory regimes, including the national minimum wage. As an employer, you will be required to pay all employees the national minimum wage. Since 2018, you are also legally required to automatically enroll employees onto a pension scheme if they are over the age of 22 and earn more than £10,000 a year.
With so many different roles, responsibilities and regulations, company law may be a jungle but, as always, we’re here to help.