This is the second in a series of two posts about a friend of mine who came into our local hostelry, positivly glowing, pruning themselves like the proverbial Peacock. When I asked what has brought this new sheen on they told me “I’ve just been made a Director” I didn’t have the heart to ask if they knew what it actually meant – but I’ll share it with you:
We know that being a Director is something that very easy to do in these days of “instant” Company formation.
For a surprising number of first-time directors, they have no idea what it is that they have signed up to, and their accountant didn’t make it clear when they set up the NewCompany Ltd.
For those new Directors that have been promoted from within a Company, the obligations were never explained during the promotion process, so again it comes as a real surprise.
Here are the 2nd four in a series of eight of the most common things that aren’t talked about:
5: Managers may follow, but directors must have their own opinions.
Making the step up from manager or sole trader to director can be an odd one. For those that meet in a boardroom with fellow Directors it can be an daunting experience, given that you are now working alongside the people that you used to report to. As a sole Director, you might feel strange having meetings with yourself, so as new directors you may, at first, feel inclined to take the easy route and fall in line, without thinking things through properly. But in the long run simply being a ‘yes man’, even to yourself can be counter-productive and could ultimately cause the business to stagnate and fail.
6: The implications of wrongful trading
You know what wrongful trading is,
It doesn’t matter if you sit on the board of a small business or a large organisation; exactly the same rules apply when that business fails to conduct its affairs in the proper manner. As a Directors you are personally liable if you allow a company to continue to trade when, to their knowledge, there is no reasonable prospect of debts being paid, either when they are due or shortly after.
This is considered to be fraudulent trading because it amounts to an intention to defraud creditors. Anyone who is knowingly a party to the fraud is liable for the debts of the company without any limit. It is also a criminal offence punishable by up to seven years in prison. And as a Director you would could not expect to get away with “I didn’t realise things were that bad”. As they say ignorance is no excuse
7: Recording your Board meetings
If anything ever goes wrong, you need to show that you are aware of, and have “adequately discharged,” your Directors’ responsibilities. As mentioned above, this is often routine in larger Companies where you are the newbie Director – you just need to show your worth, contribute to the meetings and someone else takes the notes.
Where you have just formed your own Company, you will need to know what your Articles of Association say, and what your objectives are as a Company. You will also need to show that you have a handle on all the “Management Stuff” like profitability, costs, cash-flow, stock-turns, HR and HMRC Compliance. good luck with all of that!
8: The role never stops evolving
Sitting on your laurels, enjoying the view is not an option! As a successful Director you will be continually looking to improve yourself, and your company performance, while keeping abreast of legislative changes.
Having said that, it should be a hugely enjoyable experience , where you can embark on new qualifications, or you can seek the input of external experts that can fill you expertise gaps.
I hope you have found this useful, and are looking forward to being a better director.