Finance

What is the role of directors in a limited company?

Who is a Director in a company?

The term ‘director’ is used to refer to the directors of a company. It is an informal way of saying: the persons who have the right to determine the affairs of the company.

A company is a legal fiction, and the person named as the company’s director is considered to be the ‘proprietor’ of the company. However, the directors do not actually own the company. Instead, they are given some of the powers of ownership, including the power to invest and trade. In reality, the directors are appointed by the company’s ‘proprietor’ and do not have real ownership of the company.

Duties and Functions of Directors

The shareholders of a limited company appoint directors to take care of its day-to-day operations. They have an immense responsibility and must perform the following functions:

  • They must ensure that accounting records are being maintained regularly and correctly. 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 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.
  • They are in charge of deciding the company’s accounting policies and ensuring 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 company’s shareholders every year, known as the director’s report, to illustrate how effective they were in their role.

Directors must prepare the director’s report annually by the Companies Act of 2006. This must be submitted along with the company’s annual financial statements. They must include the following:

  • A statement of financial affairs must include both monetary and non-monetary concerns.
  • The main activities that the company engages 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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