How companies work

Small business owners are used to doing everything, from carrying out seemingly menial tasks to making complicated management decisions. If the business takes the form of a company, they must remember to keep their various roles separate, as they perform different legal functions. Our checklist summarises what you need to know.

Roles and regulations

Many small companies are run by one or two people, who are the directors, shareholders and employees – in essence, the company. However, legally and practically speaking each of these roles and the company itself are distinct and must be treated as such, even if, in reality, the same person is wearing all the hats and embodies the company.

Companies are regulated by law, principally the Companies Act 2006, with their management procedures and rules being set out in their articles of association. A company’s activities and decisions must adhere to the requirements imposed on it, otherwise they could be challenged by the shareholders, others involved with the company or enforcement agencies. Also, directors who overstep the mark can find themselves personally liable (see our Directors’ Liability checklist for further details).