Director but not a Director, implications?

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W

WebDeveloper

Free Member
Feb 24, 2008
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  • #1
    Hi

    my best client is about to - assuming I give my blessing - make me "Technology Director" so that when we go into pitches together there's less confusion for the client about who does what. We're doing this as in the projects that we work together on my firm's input will be about 50% in work terms so we both feel it is important that the end client feels comfortable there's no confusion, it's one firm delivering the goods.

    I wont have an equity stake (suits me fine, less hassle) but the role will become public, I'll be on his website and have business cards etc.

    I was wondering if there are any implications to what we're doing that I may not have considered. It won't be salaried, I already do well out of the arrangement as I get 100% of his sub contracted work. I more wondered if there were any legal implications to the 'director' title.

    Thanks
     
    I

    i.m.

  • #2
    Hi there

    If and when you become a director, you will assume a series of duties that you owe the company - mainly duties that are supposed to support the idea that you will act in the best interests of the company. One of the issues that may arise down the line is the possibility of a conflict of interest which is something that a director must avoid eg you will gain access to the information of the company that could be useful to potential suppliers on pricing, budgets etc.

    Also, if you get 100% of the work now, and that continues, then there may be another issue in relation to conflict because it will appear that you are benefiting from your post as a director.

    You also compromise your independence. There are obvious dangers if the current business relationship falters.

    Tempting though it may be in the short-term, I would be careful about taking the appointment. It is true that you can cope with many of these pitfalls with consent and cooperation, but it does place potential vulnerabilities in the way where none currently exist.

    Let us know if you would like further info.

    Regards

    BR
     
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    Alpha

    Alpha

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    Feb 16, 2004
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  • #4
    Possibly not to you.

    If you are made a director legally i.e. your appointment is recorded at companies house you will have adhere to all the legal requirements laid out in the companies acts.

    If you simply have the title of director (And there are lots of people I know who are given the title for similar reasons to yourself albeit that they are employees)

    If the latter then clients will be entitled to 'assume' that you are a director and should you make any contracts with them the company you work for can be legally bound by your actions (Of course this may not be a problem depending on your actions and intentions)
     
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    W

    WebDeveloper

    Free Member
    Feb 24, 2008
    11
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    West Midlands
  • #6
    Hi,

    Thanks for the replies so far.

    Sorry, I should have been clearer: this is simply a job title for a job with zero salary and TBH we've not even got a contract (though I'm reconsidering this now). I'd only be a 'director' because I have business cards that say so, I have a formal entry on their website and also in any pitch documents. I already do work for this firm (they are a design company and accounted for about 50% of turnover last year) under my own business name and we currently inform the end client of the joint venture on the project. My client takes point and deals with billing, I just bill my client for my services and they mark me up a bit. it's worked well over the past 18 months.

    The thinking was that with this small bit of smoke and mirrors we'd seem more of a cohesive unit and it'd be one less objection to manage in any pitch situation.

    bracherrawlins you're bang on the nail with the loss of independence comment, it has been my biggest concern though I have always been very explicit with them that I work for other similar firms, actually I publically advertise the fact. My biggest issue might be winning new work from firms in the same industry once they see I've a formal (though it's not really) agreement with one of their competitors.

    Food for thought.

    Edit: typo
     
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    I

    Insol_IP

    Free Member
    Jan 26, 2008
    6
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    Insolvency Manager
  • #8
    Effectively there are 2 Directorships......executive and non-executive. One is formal with a form 288a going into Companies House and you becoming part of the board and therefore legally responsibility for the 'stewardship' of the company and the other is Director in name only.

    I would suggest that the offer is made to you on the company letter head and made clear that this is a non-executive, name only, position and that you will NOT have a legal responsibilities in the day to day running of the company.

    Signed by the Director on behalf of the Board of Directors and also the Company Secretary..........it would also be helpful to make an entry in the company minutes book.

    If all goes well, smiles all round...............if for some reason it ends in tears you exposure is fully noted and no financial repercussions as your position is fully documented.

    Good luck.
     
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    Antonia @limeone.com

    Antonia @limeone.com

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    Jan 28, 2006
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    Chester
  • #9
    It is not as simple as informing the client you are a Non Executive director ( see our PDF guide on the roles and responsibilities of NEDs on our web site). In simple terms unless you are a director and registered as such at Companies House you and the company are misleading the client as to your true role.

    Far better to be clear that you are a supplier and have a contract in place to underpin your supply of services to the company. It really muddies the waters for sub contractors to become name only ' directors' in this way as effectively this makes them employees of the company and I cannot see by your posting that that is desired by either of you.
     
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    Kent Accountant

    Kent Accountant

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    May 30, 2006
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  • #13
    vanboy said:
    Why not "Technical Partner"?.
    Click to expand...

    :|

    If you are enquiring why it wouldn't be caught by IR 35, it is because the business relationship between WebDeveloper and the design company does not appear from the information given to be inside IR35. SJD Accountancy are specialists in this area and summarise the questions as follows:

    "What kind of working practices and contractual conditions are HMRC looking for to see if you're inside or outside IR35? Below are a few hints, tips and pointers. Please be aware this is not a comprehensive list, IR35 regulations are extremely complex but the brief notes below should provide a rough indicator:
    Control: Are you free to work under your own control i.e. not managed by the client?
    Financial risk: Although profit share is common place in the employed world, it is without exception in owner managed companies. Also, employees rarely risk financial loss by being employed, whereas if you buy assets such as PC's, laptops, servers, printers, office equipment or a client fails to pay you as director of your company you will most definitely experience financial loss.
    Substitution: In your contract do you have a clause about using somebody other than you to perform the task you're company has been contracted to do?
    Provision of equipment: Will you be using your own equipment? Sometimes this is very difficult and allowances are made where security measures prohibit the use of say using your own laptop.
    Right of dismissal: Do you have a fixed notice period. The Revenue will argue that this is like an employee, therefore there should be provision in your contract for immediate termination should the client choose to do so.
    Employee benefits: Plainly speaking you can forget about receiving any holiday pay, sick pay, pension contributions, training courses, Christmas dinners or the annual staff summer outing.
    Please remember, HMRC don't just look at the above - they review EVERYTHING in an effort to establish if you are really an employee or a director running, managing and controlling your own limited company. It doesn't matter if you are working for the same client for one month or twenty years. It's what you're doing and your level of risk, responsibility, liability and control."
     
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    W

    WebDeveloper

    Free Member
    Feb 24, 2008
    11
    1
    West Midlands
  • #14
    Antonia limeone.com said:
    It is not as simple as informing the client you are a Non Executive director ( see our PDF guide on the roles and responsibilities of NEDs on our web site). In simple terms unless you are a director and registered as such at Companies House you and the company are misleading the client as to your true role.
    Click to expand...

    I have read your PDF, very useful, thanks. Although what I don't understand is how what I'm doing is any different to being - say - Art Director, which is a title you get a lot with larger creative agencies, when all they are is employees.

    Insol_IP said:
    I would suggest that the offer is made to you on the company letter head and made clear that this is a non-executive, name only, position and that you will NOT have a legal responsibilities in the day to day running of the company.

    Signed by the Director on behalf of the Board of Directors and also the Company Secretary..........it would also be helpful to make an entry in the company minutes book.
    Click to expand...

    I prefer this approach. I'm seeing my client over the coming days so will thrash this subject out a bit more. I think I'm going to ask for a retainer too.

    Thanks for all replies, what I thought was a simple thing has tuned into a pretty big deal.

    Cheers
     
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    J

    jordao

  • #15
    Hi, I have been at my current place of work for 5 & half years during which time (about 4 years ago) we became a limited company, they needed someone to become managing director, it turned out to be me, I have never been anything other than an employee really, I have never had any say in the finances or running of the company whatsoever, I am not informed of anything that is going on either.

    The company is currently going through difficulties & our financing bank has become involved heavily into it, they have realised that the people who actually run the company & named them as shadow directors, thus making them as liable for losses & resposibilities as a director.

    I was wondering, is there something out there that protects people in the position as myself, I have signed a indemnity & by the way the bank made the other 2 people (shadow directors) sign it too.

    I really haven't had any input into the company so there must be a law somewhere that covers this instance.

    Any advice would be great

    Thank you
     
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    S

    Successful Selling

  • #16
    Kent Accountant said:
    :|

    If you are enquiring why it wouldn't be caught by IR 35, it is because the business relationship between WebDeveloper and the design company does not appear from the information given to be inside IR35. SJD Accountancy are specialists in this area and summarise the questions as follows:

    "What kind of working practices and contractual conditions are HMRC looking for to see if you're inside or outside IR35? Below are a few hints, tips and pointers. Please be aware this is not a comprehensive list, IR35 regulations are extremely complex but the brief notes below should provide a rough indicator:
    Control: Are you free to work under your own control i.e. not managed by the client?
    Financial risk: Although profit share is common place in the employed world, it is without exception in owner managed companies. Also, employees rarely risk financial loss by being employed, whereas if you buy assets such as PC's, laptops, servers, printers, office equipment or a client fails to pay you as director of your company you will most definitely experience financial loss.
    Substitution: In your contract do you have a clause about using somebody other than you to perform the task you're company has been contracted to do?
    Provision of equipment: Will you be using your own equipment? Sometimes this is very difficult and allowances are made where security measures prohibit the use of say using your own laptop.
    Right of dismissal: Do you have a fixed notice period. The Revenue will argue that this is like an employee, therefore there should be provision in your contract for immediate termination should the client choose to do so.
    Employee benefits: Plainly speaking you can forget about receiving any holiday pay, sick pay, pension contributions, training courses, Christmas dinners or the annual staff summer outing.
    Please remember, HMRC don't just look at the above - they review EVERYTHING in an effort to establish if you are really an employee or a director running, managing and controlling your own limited company. It doesn't matter if you are working for the same client for one month or twenty years. It's what you're doing and your level of risk, responsibility, liability and control."
    Click to expand...
    We obviously don't have enough information on this specific case to decide if he falls within IR35 or not, however I would argue the exact opposite.

    At the very least, this guy has already admitted he receives 100% of this particular clients sub-contract work. Depending on a few minor details I would suggest, while working for this client alone, he looks like a prime example of someone who falls well and truly into IR35.

    BTW, SJD are not going to put information on their website to suggest otherwise. This is because if they admit the contractor falls into the reams of IR35 leg, the Ltd company route would be the least tax efficient.
     
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    C

    Chris Ashdown

    Free Member
    • Dec 7, 2003
    13,391
    3,006
    Norfolk
  • #17
    When you agreed to be a director you assumed the responsibilitys that came by law with the position, if you did not understand or let others dictate where the company went, that is your failing and you are still responsible

    You need to find out your position as a director asap and stop thinking you are just a employee, the law assumes you are fully conversant with your duties as a director and holds you responsible
     
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