Directors/ Partnerships/ Sole Traders
Directors
A director’s duties as a director of the company are separate and distinct from any duties he may have as an employee (assuming that he has both roles). In the latter event he should have a service contract or at the very least a full job description.
If also acquiring shares in the Company directors should take professional advice on the benefit of a Shareholders Agreement.
As to duties of a Company Director there are statutory obligations imposed by the Companies Act 2006 and other legislation, including a duty:
• to promote the success of the company and act solely in its interests and that of its staff.
• to exercise care towards shareholders
• to act within the powers conferred on directors by the company’s Memorandum and Articles of Association.
• to exercise independent judgment
• to avoid conflicts of interests
• to exercise the degree of care expected of persons in their respective positions and also the degree of care expected of them relevant to their individual knowledge and experience
• not to deceive any outsider or accept benefits from third parties.(refer in particular to Bribery Act 2010)
• to declare an interest in any proposed transaction.
• to comply with “filing obligations” at Companies House
• not to allow their company to continue trading if it becomes insolvent.
The Companies Act 2006 confirms that the duty of directors is to act in a way which they consider most likely to promote the success of the company for the benefit of it’s shareholders as a whole and that in doing so, they will need to have regard, where appropriate, to long term factors, the interests of other stakeholders and the community, and the company’s reputation.
Another increasingly recognized and important duty of individual directors is the interests of the Company’s employees and what actions should be taken to safeguard those interests. Health and Safety procedures should be a regular item on the Board’s agenda and professional advice obtained where necessary.
Since April 2005 Company directors (including non-executives) can face criminal sanctions if they fail to provide the Company’s auditors with material information that they know or ought reasonably to know as directors.
Directors should be aware that they might incur personal liability for company debt if they represent that the company is in a position to pay for goods or services when, to their knowledge, it is not in a position to do so. The Court of Appeal has held that a director had given an implied warranty and was therefore personally liable where he had signed a contract on behalf of a company knowing that the company could not pay for the goods.
It should be noted that only actual directors appointed by the Company and registered as such at Companies House should be called directors. To give a job title to an employee such as “Director of Sales” when that person is not actually a director could result in the company being liable to third parties who reasonably assumed that the employee was an actual director and acted on that assumption to their detriment.
It may or may not also be necessary to differentiate between executive and non-executive (or independent) directors to ensure clarity in dealings with any third party. Many non-executives are involved in more than corporate governance and are increasingly involved in company development. In law there is no recognized distinction between executive and non-executive directors.
As it is no longer necessary to appoint a Company Secretary in a private company, directors should consider the implications of not doing so and, if appropriate, ensure relevant duties are undertaken elsewhere.
If considering directors’ liability insurance good professional advice should be obtained.
The Institute of Directors has an exam leading to the qualification of Chartered Director. The exam tests knowledge of company law, audit requirements, performance in making judgments based on balance sheets and mastery of marketing strategies. Candidates must have experience as a director in three of the previous five years.
Partnerships
Partnership Laws are over 100 years old and have been consolidated in the Partnership Act 1990.
Partnership problems can be many and varied particularly where no partnership agreement has been entered into. Such agreement should be prepared at the earliest opportunity, preferably with the help of a solicitor or accountant.
By virtue of the Limited Liability Partnership Act 2000 and the Limited Liability Partnership Regulations 2001 there is now a new form of legal entity. A L L P is a body corporate (thus calling it a partnership is slightly misleading) where members have limited liability and avoid the complications of a limited liability Company e.g. issuing shares, holding Annual General Meetings and General Meetings, passing ordinary and special resolutions. It is necessary to have an incorporation document and registration procedures at Companies House have to be followed. Seek the advice of an accountant or solicitor if considering this route.
Sole Traders
With limited resources, including finance and time, the sole trader must prioritise the workload and delegate to others wherever possible.
Getting the right advice from sources such as “Business Link” is essential.
Organising such matters as book-keeping, tax, v.a.t. and the services of a good accountant will save untold problems as the business develops.
Looking after the finance, including effective credit control procedure, is vital. Remember as a sole trader you have personal liability for all business debts.
Marketing will depend, of course, on the budget you have available. Remember that if you trade in a name other than your own then your letterheads etc. must reflect this.
Do not neglect your “Terms and Conditions of Business”. If your trade organisation cannot help with a precedent then instruct your solicitors to prepare one specifically for your business.