One of the knottiest issues of running a small limited company is the understanding of directorships. People often fail to appreciate that a director is just that. He or she is directing everything that goes on in a limited company, either on their own or as part of a team. The buck stops firmly with the company directors in all circumstances, even if they have delegated day to day matters to trusted managers.

I remember many years back when attempting to register my intention to wed, I went to the council and the stroppy clerk asked my soon-to-be wife what her father’s occupation was. Upon receiving the answer “company director”, she retorted pithily “that is not an occupation – it is a status”. Silly old battle-axe, but she was correct – it is a status and it carries serious responsibilties, usually those of health and safety being the ones that make the headlines when it all goes pear shaped.

Now, to confuse people more, they think that a non-executive director is a way of being a director without legal responsibility. This is incorrect as the law only does not discriminate between types of directors. In a large company it may be easier to mitigate the situation as there are clearly a lot more decision makers and everything is recorded and chronicled even down the teabags used, but in a small owner managed limited company it will be much harder to run away from it all when the balloon goes up.

So, the parting lesson is this – directorship is what is known as “strict liability” – you are liable for anything that may go wrong with the company.

So before you do your mate a favour bear it in mind!

Written by FDAdmin