Limited company directors fail to understand basic business concepts

The true extent of UK Limited company directors lack of key business knowledge and their business fears have been revealed for the first time.

A new survey of 250 UK limited company directors by CompanyHelp reveals shocking levels of misinformation, lack of understanding of key financial facts and also the precarious business situation UK’s limited companies are in.

According to the research, 60 per cent do not fully understand how a directors’ loan account functions. A quarter (26 per cent) of directors incorrectly say a limited company protects directors from all debt liability.

More than 36 per cent of directors incorrectly feel that if they own a company the money in it is theirs. Just under half (47 per cent) of directors also say they do not know the quick cash flow or balance sheet tests to determine if a company is insolvent.

Andy Clay, spokesperson for CompanyHelp says, ‘This data is actually quite shocking when laid out plainly for all to see. Whilst for those of us involved in the insolvency business the issues of overdrawn loan accounts and wrongful trading are an everyday occurrence, it is clear there is a problem here which needs to be addressed.

‘For such high numbers to not have basic understandings of corporate governance is alarming, especially if business takes a downturn.

‘Some of the misconceptions we see on a regular basis ring true with this survey data. There is a frequent lack of understanding about personal guarantees involving company debt such as overdrafts or borrowing.’

Clay adds, ‘Even trade supply agreements now routinely come with directors’ personal guarantee clauses in the small print and many are horrified to learn they are personally liable for that debt.

‘A lot of directors still do not understand that a limited company is a separate living breathing legal entity and a sole trader attitude towards taking money from companies thinking it’s their own cash is what puts a lot of directors into a position of owing a failed company money and facing not just company liquidation but also personal bankruptcy.’

The survey also reveals the biggest business fears for company directors for 2017 being Brexit 27 per cent, late payments 14 per cent, staff costs 13 per cent and workplace pensions 6.5 per cent.

More than 20 per cent also say if one or more creditors failed to pay in 2017 they were at risk of insolvency highlighting a large number of businesses that are too reliant on just one main source of income.

Andy Clay concludes, ‘It certainly looks like business confidence is falling away with only 15 per cent saying Brexit will have a positive impact on their business we could be heading into very troubled times.’

Further reading on business directors

Owen Gough, SmallBusiness UK

Owen Gough

Owen was a reporter for Bonhill Group plc writing across the and titles before moving on to be a Digital Technology reporter for the

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