Finance

What is the role of directors in a limited company

Directors are appointed by the shareholders of a limited company to take care of its day-to-day operations. They have an immense responsibility and must perform the following functions:

role of directors
  • They must ensure that accounting records are being maintained regularly and in the right manner. These records must be accurate and comply with the international accounting standards and the rules of the Companies Act so that they can be used to prepare the financial statements.
  • They must prepare the company’s annual financial statements:
    • Income statement 
    • Statement of financial position, or balance sheet
    • Statement of changes in equity
    • Statement of changes in cash flow
  • They should effectively manage the company’s resources, including its funds and employees, effectively.
  • They are in charge of deciding the company’s accounting policies and ensuring that they are followed.
  • They must support the auditing process by providing auditors access to the company’s financial records and answering any questions or doubts they raise.
  • They must prepare a report for the shareholders of the company every year, known as the director’s report, in order to illustrate how effective they were in their role.

Directors are required to annually prepare the director’s report by the Companies Act of 2006. This must be submitted to them along with the company’s financial statements for the year. They must include the following:

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  • A statement of financial affairs which must include both monetary and non-monetary concerns
  • The main activities that the company engaged in
  • Significant events that have occurred after the company’s financial year-end and detailed information about them
  • Significant events that may occur in the future and detailed information about them
  • Details about shares
  • Proposed dividends
  • Any transfers to the general or capital reserves
  • Details about any donations made (to charities or educational institutions)
  • Details about research and development activities that are in progress

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