Company law and directors' responsibilities

We have to comply with laws but we should not forget that the prime reason is to know how the business is performing and to keep track of assets and liabilities. For many businesses, the owners keep track of them by being aware of their bank and cash transactions. HMRC (Her Majesty's Revenue & Customs), or equivalent authorities in other countries such as the IRS in the United States, requires adequate records of income, expenses, assets etc so that income, corporation, capital taxes, sales taxes and duties can be correctly levied.

It is beyond the scope of this book to cover UK or US tax laws, and in any event many large companies are well advised on how to minimize tax payments - so-called tax avoidance. Evading tax by deliberate deceit is tax evasion or fraud; however, in the simple minds of many politicians tax avoidance is considered unethical if not fraudulent. Maybe some avoidance is unethical, but to me the problem is the laws that can be avoided; authorities should draft clear and unavoidable tax law.

One clear tax issue is that of in what format and for how long records should be kept, and here is the summary from the HMRC website:

Either on paper or on computer. For electronic records you must:

- capture all the information (front and back)

- save information in a readable format

- keep a back-up and stored as a general rule for a minimum of six years.

(HMRC, 2014)

Listed companies - companies whose shares are listed on a recognized stock exchange - are required to produce regular, often quarterly, statements of profit or loss, asset and cash positions.

There may also be other agencies, such as statistical collection authorities, who demand regular returns, which again require businesses to maintain proper accounting records.