Directors of small companies who think that business compliance doesn’t apply to them because their firms are not listed on the stock exchange should think again as the law covers all limited companies. Get it wrong and you could be facing massive fines or even a criminal record.
Corporate compliance requires a business to have processes, customs and practices in place to ensure the directors are running the company legitimately and making sure it behaves in an appropriate way. The directors have a duty to promote the success of the company, to act in good faith and to be honest. They need to have good intentions and to bear in mind the impact on stakeholders, employees and the environment, amongst other responsibilities.
All companies have to file annual accounts, but it’s just as important to make sure you’re up to date with relevant legislation. It’s not enough to just meet the requirements; you also need to be able to show evidence that you’re complying.
Take the anti-bribery legislation as an example. Increasingly, before a larger firm signs a contract with you they’ll want to see what policy you have in place to meet the anti-bribery requirements, along with proof that your directors and staff have received training to ensure they understand the law.
While most directors know about areas such as accounts, not everyone understands duties, such as avoiding conflicts of interest and putting the company’s interest before their own.
One requirement that can be tricky in family firms is the need for directors to ensure they make independent judgments. A director can’t just vote for something as their father told them to, they have to take what they personally think is the right decision for the company. The law won’t accept a defence of “He told me to do that”.
The biggest benefit of ensuring the correct policies and procedures are in place and compliance requirements are met might be sleeping better at night, knowing that, on the legal side, it’s covered. Getting things wrong means the risk of being prosecuted, with the worst offenders even getting a criminal record for failing to file accounts. When it comes to compliance, ignorance is no excuse.
• Andrew Cockburn is director of company formation specialist Oswalds, a part of the Jordans Group