So the boss has called you into his office and says he has some good news for you. He’d like you to become a director of the company. It sounds like the ultimate promotion, you’ll be a member of the senior management team and will be playing a pivotal role in the strategy and development of the company. It will probably be accompanied by a higher salary and some lucrative bonus opportunities, and it will also look great on your CV.
All this is true, but before you snatch the pen out of his hand and ask where you have to sign on the Director Service Agreement, take a little time to understand the full implications, responsibilities and potential liabilities that a directorship entails.
If anyone tells you that being a director is “just a formality” alarm bells should start to ring. The Companies Act (2006) stipulates exactly what your responsibilities are. Ignoring them, or abdicating them to other directors, can lead to personal liability for any breaches, which can include fines, disqualification from being a director in future and even imprisonment.
Here are the duties that the Act lays down for company directors:
Your biggest fundamental responsibility as a director is to protect the company’s financial wellbeing. If you are aware that the business is facing financial difficulty, you cannot just stand back and watch it happen. It is important under these circumstances to seek independent financial advice to protect yourself, as well as the company.
This means that as a director, you need to have access to the company’s finances. Ignorance is no defence if things go wrong. In the worst case, if a company becomes insolvent, the primary responsibility of the directors is to their shareholders. A director who allows a business that is on the brink of insolvency to continue trading and running up even more debts can face criminal charges for wrongful or fraudulent trading.
All those positive aspects we mentioned at the beginning mean that being offered a directorship really can be a fantastic career progression that is a cause for celebration. Just be sure to understand the cons, as well as the pros. Remember that directors receive a higher remuneration for a reason, and never underestimate the seriousness of your responsibilities or the potential consequences if things go wrong.
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