Husband offered directorship. Pls explain it to me like I'm five.

[Pixiedustfan]

Dh has been asked if he would like to become a director of the Ltd company he works for. Both of us aren't really business savy. I've just googled as he's at work. If he takes it does this meN he would be responsible for any debt of the company. He wouldn't have shares.

Please can someone explain what the risks are?

Involved in management.

Worst case ff anything does go wrong and the company entered an insolvency process then he would be jointly liable for any wrongdoing / mismanagement. It wouldn't be a defence to say he didn't know, or that he left x, y, z jobs to another director. If claims were established then yes he could in that situation be sued personally. There could also be a referral to the DTI by an officeholder (have to do a report saying to DTI saying whether they believe directors have acted properly) recommending the directors be banned from being a director.

I'd be very careful and do due diligence before agreeing to be a director.

This is the most helpful guidance.

https://www.gov.uk/guidance/being-a-company-director

It’s not something that should be taken lightly. If he’s not business savvy it’s not something he should be doing to be honest. He won’t be responsible for company debts directly he could be responsible for negligence.

I would also consider the state of the business before he goes onto their public record too.

Thank you both very much for replying.

If you have any further insights or thoughts, I'd be really grateful.

He has been told if he doesn't want to be a director he could sit on the board. I'm totally confused as I thought the board was a board of directors?

He can attend the board as an observer (it wouldn't usually be described as sitting on the board in that case, but people can use language carelessly)

Why doesn't he ask to do that for 6 months and then assess?

He may wish to have something linked to the increased responsibility eg share options or a pay rise, if he does become a director.

ETA completely agree with assessing how stable the business is first - attending the board as an observer would help with this

Thank you very much

He should ask about the company's Directors and Officers' insurance. If they don't have this I would be very wary. He needs to be clear on the statutory duties of directors and the obligations of running a company. If he isn't business savvy, why has he been asked to be a director? Will the company provide any training? If the company is a subsidiary of a plc, there will be a company secretary who should be able to advise him on the governance matters.

I’m wondering why they want him, when he has so little clue?
What on earth will he bring to the table?

Thank you. It's an old family company. Dh has helped with some big changes and has a lot of forward thinking in regards to products. He's very good at what he does but isn't involved heavily with the 'business' side.

I am really grateful for all the help and advice. I've been trying to read up as much as I can but there's a lot to take in and sometimes not everything is covered.

Just to add, he knows the business well and other organisations/ contacts within the industry.

What would be the advantage for him?
If he has no shares it is effectively just still a job, although he will have obligations as detailed above

If he does join the Board he should definately be given shares or another significant incentive - it's additional work.

The company are among this a reward and recognition of his value to the company for him. Indeed being able to hold himself out as a director of the company may sit well with customers and contacts or those he has dealings with in that they will automatically recognise him as a senior member of the company.

There are some risks as detailed above which do need to be considered carefully as he would have a fiduciary duty but generally its promotion and recognition of his contribution.

If a director is honest and does what is right for the company / shareholders, and complies with the law - then they will never be liable personally for debt (it is a limited company - which means limited liability). Liability is limited to the paid up value of the shares.

The only exception would be if for example there is a loan which requires director's to take personal liability but that would be a separate form to sign if that ever came up.

The director's job is to comply with the law and then to run the business for and on behalf of the shareholders - usually that means making profits!

There can be several types of director - in a large business it can be just a job title - you direct others / a board director - you also sit on the board / a company director - you are registered as a director at companies house...

in a small business there is usually only one type of director.

if he sits on the board without being a director, he will probably be considered by Companies House to be a shadow director or POSC (person of significant control) and have to be registered as such - there is little difference in liability or in legal terms between being a director or POSC.

there is unlikely to be much negative outcome in being a director and it is usually seen as an honour / promotion. As above - there is little liability if he is honest and does what is right... If there are dodgy decisions being made by the board which might suck him in, then he declares a contrary position in the meeting minutes, or resigns - no risk. (I suspect though he already knows how the business is run and that shouldn't be an issue).

I would though see if he can get shares if at all possible as that is where you make money in a business - so may be worth a discussion to see if there is any option for that now or in the future...

but don't fear it - it is a compliment and worth doing...

(my background - lost count of how many directorships I have had in my businesses and others - and act as a management consultant advising companies and board members...)

Sometimes "Director" is just a job title, he should get shares but won't be listed on companies house as a director and therefore won't have the liability, but will have the benefit of having a "stake" in the company.

Depends on the size and scope of the business.

Thank you all very much, I am very grateful for all the help.

Check whether his directorship will bein the form of a partnership. If he becomes a partner, this could have tax implications and an effect on how his monthly income is structured as partners are, effectively, self-employed.

It's pretty unlikely that it would be, given the information provided thus far.

@Pixiedustfan has he had sight of all the accounts and books? does he understand profit and loss?? he really needs to see a few years books and get a whole picture of how the company is doing at the moment and what the reason is for being asked on the board/ he also needs to see minutes of meetings where board has discussed things!

He should check out the accounts regarding debts, he may also be liable in a court of law if he is a director. Works accident's, negligence etc

It’s a limited company

Is it a titular director or a Director as listed on Companies House? Big difference.

Thank you all again.

Can he be a director in title only? We've looked at the company online snd Al the other directors are listed on companies house so I assume he would be too.

This is the second time I've noticed this thread.
And the second time I've read it as being offered a dictatorship!

Unless your husband has been offered shares or a significant pay rise or can negotiate these, plus agreement of the company to pay for directors duties training, it would be folly to accept the role. Once you are a director registered as such with the Registrar of Companies you are subject to statutory duties under the Companies Act 2006 plus additional duties under lots of statutes as well as common law. Breach of some of these duties is a criminal offence and the others attract financial penalties. It’s not a thing to undertake lightly or in ignorance.

Additionally, some people who act like directors, hold themselves out internally and to outside people as directors and sign for the company etc will be treated in law as directors too, even though not registered with the Registrar of Companies. So he should be careful.

Have a Google. My sister in law in a similar position found lots of free guides on the internet produced by big law firms about directors duties in the U.K. and Companies House / the government issue some too. She also looked at the Institute of Directors materials and did a course. It could be a great opportunity, but he needs to avoid being effectively asked to take all the responsibilities with none of the reward.

I wish they still had the laugh emoji reaction. I've thought exactly the same in my head when we've been discussing it at home.