Monday, 30 September 2013

Does Providing Professional Advice to a Limited Company put the Advisor at Risk?

The answer is generally no. Giving advice in a professional capacity to a limited company does not normally make someone a shadow director. However, you may be more at risk in certain situations - for example as an in-house lawyer or a financial adviser.

To minimise risk liability a person concerned should:

1. Ensure that all business decisions are properly taken by the board;
2. Ensure that any advice given does not take the form of a “dictat”;
3. Avoid taking control of the financial affairs of the company you are giving advice to;
4. Always make sure that minutes of board meetings reflect that decisions have been made by the board;
5. Always ensure the minutes reflect the capacity you are attending in (i.e. not as a director – for example as an advisor to the board).

There have been instances where management consultants have been disqualified and held to be de facto directors but the above should help avoid this situation arising.

Saturday, 14 September 2013

What is meant by being involved in the “management” of a company?

The meaning has been interpreted extremely widely. There are no hard and fast rules as to what it means as every company is run differently. The courts look at matters on a case by case basis to determine whether a person’s role is effectively involved in the management of a business rather than that of an employee.
However, there are indicators that a person is acting beyond the remit of a mere “employee” and is effectively involved in the management of a business:
(i) Being a signatory on the company bank account;
(ii) Attending board meetings;
(iii) Being involved in strategic planning;
(iv) Being the “go to” person for customers and clients;
(v) Otherwise making decisions that no other person can make and/or having no one to account to.

Friday, 13 September 2013

What is a Director?

A “Director” is not generally defined in legislation, but relates to any person occupying the position of director by whatever name called. This can include senior managers, partners, trustees or governors. Conventionally, a director appointed to a company’s board and registered at Companies House is referred to as a De Jure director.

A director will always include non-executive directors who, although not having a role in the company’s day-to-day affairs, have identical responsibilities to the executive directors (i.e. the active directors) in respect of company affairs and duties under the Companies Acts.

Other individuals may also be defined as a director and therefore be subject to the same responsibilities and requirements of ordinary De Jure directors. These generally fall into one of two definitions, either a “Shadow Director” or a “De Facto Director”.

Shadow Directors” are specifically included within the definition of a director by statute, which describes such persons as, “a person in accordance with whose directions or instructions the directors of a company are accustomed to act,” although this excludes roles where the directors acted in reliance of an individual acting in a professional capacity (e.g. an accountant). “De Facto Directors” are not generally defined by the legislation but are well recognised in common law as comprising those individuals who act as a director even though not validly appointed as so.