Responsibilities of Directors
As directors you are responsible for managing the company’s day-to-day business affairs. Logically, this comes with certain duties attached, including duties to the company, to its shareholders, and to others dealing with the company.
Company directors must act honestly in what they believe to be the company’s best interests. Directors must also act with such care as may reasonably be expected of them in all circumstances.
The directors must not carry on the business in a manner which would be likely to create a substantial risk of serious loss to the company’s creditors. This is what is known as “reckless trading”.
In addition, there is something known as…
The Solvency Test
The Companies Act requires that directors abide by a two-step test at all times:
- The company’s assets must be more than its liabilities
- The company must be able to pay all of its accounts as they fall due.
The solvency test really kicks in under the following circumstances:
- There is to be an amalgamation
- The company wishes to make a distribution
- The company wishes to repurchase or redeem shares
- The company wishes to provide discounts to shareholders
- The company wishes to reduce shareholder liability, or
- The company wishes to provide financial assistance for acquiring the company’s own shares.
You can find further reading at the Companies Office website.
So that’s the first part. But wait! There’s more! The Companies Act requires that all companies keep and maintain certain records.
- Company records (section 189)
- Share register (section 87) and
- Accounting records (section 194).
A company must keep at its registered office or other designated location:
- the constitution
- minutes of shareholders and directors meetings
- financial statements and accounting records, and
- the share register.
The Share Register
A company has to maintain a Register of Shares that records the shares issued by the company and which shows:
- whether there are any limitations/restrictions on their transfer; and
- where any documentation that describes the restrictions or limitations may be inspected.
The share register must also contain:
- an alphabetical list of the shareholders’ names with residential addresses or registered office; and
- the number of shares held.
Note: This list should all show shareholders within the last ten years.
The register must also show the date of share issues, repurchases, redemptions and share transfers. Furthermore – this is important – the share register must be kept at the company’s registered office. So, if your home address is the company’s registered office address, it needs to be kept there!
Accounting records and auditors
Every company must prepare financial statements annually. These must be audited unless all shareholders in the company agree otherwise. This is done by a resolution at your annual meeting (don’t forget about this!).
The directors of a company must ensure that the company keeps accounting records. These records must:
- accurately record and explain the company’s transactions;
- at any time enable the financial position of the company to be determined with reasonable accuracy;
- enable the directors to ensure that the company’s financial statements comply with the Financial Reporting Act 1993; and
- enable the company’s financial statements to be readily and properly audited, if necessary.
The company must hold an annual meeting of shareholders once in each calendar year – note, not in each financial year.
Generally, the meeting must be no later than 10 months after the company’s balance date and no later than 15 months after the previous annual meeting. If you’re newly incorporated, you must hold your first annual meeting within 18 months of incorporating.
Phew! Got all that? This is not an exhaustive list, but gives you an idea of the most common responsibilities and privileges.
If this all seems a bit mind-boggling, don’t panic. We can simply add it on to your annual accounts package. Don’t worry – it won’t break the bank. Contact us for help.
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