Many people, especially spouses, agree to be a director of a company without asking any questions of their roles or responsibilities. There are many reasons why an individual running a small business decides to operate through a corporate structure. There are as many reasons why that individual asks another person to act as director. In the vast majority of instances this does not create any problems for the company or for either individual. However, being a director does carry certain responsibilities, and these should always be considered before the post is accepted.
Foremost, the duties of a director are to the company and not to the other directors, either in their capacity as director or in any personal capacity. However, many directors still look upon the company as being an extension of their own or their spouse’s self-employment. This will only be a problem, of course, if there is a divergence between the interests of the directors and those of the company.
Setting up a company is now a cheap and easy process. However, there are governance laws affecting the relationship between the director, the company, and other parties such as lenders and creditors that need to be understood.
A board is made up of two or more directors. Each director must, however, always be aware that errors of judgement are the responsibility of all board members rather than just an individual. This is similar to a “quasi-partnership” and you can therefore be held responsible for errors made by other board members.
Before accepting a directorship you need to be comfortable in how the company has been and will be run, and in particular you need to ensure that you have confidence in the board and how it operates. You also need to be clear as to what your particular role will be and how the company and the board will make ‘best use’ of your skills in running the company.
Finally, if a company grows beyond the stage of being a family business, and it becomes clear that additional directors are needed to share the workload and responsibility of running the company, then it will be essential create a formal corporate governance framework. This will not only protect the individual directors, but also add value to the business. Companies that are run as extensions of families and, therefore, family problems can see their value to prospective purchasers dramatically reduced.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in these and other matters, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.