So you’ve been offered a directorship; now what?!
You may have worked hard for a long me in a company or business and whether you expect it or not, you end up being called into his or her office for a chat! Fortunately, it’s not to present you with your P45 but instead to offer you a step up to become a director of the company, reflecting your skills and contribution – Great you think – but what is really involved?
Many people see a directorship as a title, an honour, a privilege, but it’s a risky business and you must ensure you don’t underestimate your obligations to the company and its shareholders. Becoming a director has duties and responsibilities that you shouldn’t overlook; it is not just a formality, it is a very important role within a company, and failure to comply can result in personal liability for the company’s debts, fines, disqualifications and even imprisonment, in extreme cases.
So, what will you be required to do? Under company law, the ten commandments of directorship, so to speak, are as follows:
- To act in good faith to promote the success of the company;
- To act in accordance with the company’s constitution which includes any shareholder agreements and resolutions;
- To exercise independent judgement;
- To carry out your duties with reasonable skill and care;
- To avoid a situation which may conflict with the interests of the company;
- Not to accept a benefit from third parties in your position as a director which may conflict with the interests of the company;
- To declare interests in any existing or proposed transactions;
- A duty of confidentiality in respect of company information;
- To comply with statutory obligations including: Health and Safety Legislation; Employment Legislation; Environmental Legislation; Anti –Corruption Legislation; Filing annual accounts and statutory returns;
- Ensure the statutory books are maintained and meetings and resolutions are recorded as evidence of decisions made (ensure that you are involved in the meetings so you are party to the decisions rather than them being made in your absence).
The company might look to bring a claim against you personally if you do not comply with the above – and these are over and above whatever ends up in your employment/service contract.
“Directors can be personally liable for breaches in health and safety law as members of the board have both collective and individual responsibility for health and safety.”
Company finances are the key concern of directors and any financial difficulty should be swiftly followed by independent advice. Directors who are unaware of the company’s financial situation or do not have access to company accounts are at risk if the company becomes insolvent or there is a risk of financial problems.
If the company finds itself in financial trouble and carries on trading to the detriment of its creditors, this is known as wrongful trading, and any director who should have known the ‘point of no return’ had been reached can be held personally liable for the debts if the company goes into liquidation.
“Accepting an appointment as a director, therefore, should be well thought through given the potential liability you are signing up to. If you have any concerns, do not ignore them; take legal advice and minimise the potential risks for all involved.”
If a director was knowingly a party to the carrying on of the company’s business, in the course of the winding up of a company, with the intent to defraud the creditors, this is known as fraudulent trading, and the director may be required to make a contribution to the company’s shortfall in this case.
Directors can be personally liable for breaches in health and safety law as members of the board have both collective and individual responsibility for health and safety. Guilty parties are liable for fines, and in some cases, imprisonment.
Accepting an appointment as a director, therefore, should be well thought through given the potential liability you are signing up to. If you have any concerns, do not ignore them; take legal advice and minimise the potential risks for all involved.
“Becoming a director… can result in personal liability for the company’s debts, fines, disqualification and even imprisonment, in extreme cases.”
This article is intended for general information purposes only and does not intend to provide legal advice and should not be used as such. As every ma er is different, if you would like specific advice about your own circumstances, please contact us direct.
Richard James specialises in Corporate Finance, Franchising, Technology and Media Contracts and Intellectual Property.
Richard James Partner, Solicitors Title