THE DIRECTORS' ACADEMY

Becoming a Company
Director

Membership of a board of directors is a great privilege - but it is accompanied by risks and responsibilities, so the question is "Why would anyone want to become a company director?"

"Why do you want to become a director?"

Discover whether you have the qualifications, qualities
and competencies to become a company director

Qualifications | Qualities | Competencies | Risk | Shadow Director

Membership of a board of directors is a great privilege -
but it is accompanied by risks and responsibilities

 

Why become a director?

Why do you want to become a director? Indeed, why would anybody want to become a director?

Directorships bring risk, responsibility and no privileges!

 

Companies need directors to constitute a board and to direct their operations.

 

But why would anyone choose to become a director?

 

Let’s get one thing straight first. Becoming a director has no relation with owning shares; you can be a director without owning shares, and you can own shares without becoming a director.

What is a company?

There are three elements in a company:

  • the company itself
  • the shareholders
  • the directors

And these are entirely independent.

 

In addition, there is a whole range of stakeholders to consider.

What is a director?

A company director is an appointed or elected member of the board of directors of a company who, with other directors, has the responsibility for determining and implementing the company’s policy.

 

Directorship is a hands-off approach to value creation that complements c-suite leadership.

 

Directors hold a position of trust on behalf of the shareholders and direct the company’s operations on their behalf. 

Would you like to learn more about directorship?

The New Directors Handbook does what it says on the cover: a practical, comprehensive guide to becoming an effective director.

"how to become more confident, more effective, more quickly.."

  • Everything you need to do as a director
  • How to run an effective meeting
  • How to understand finance and accounts
  • Strategy planning and decision making techniques
  • The difference between limited liability and director liability
  • How to protect yourself in case things go wrong

Priced at £14.99, you can download the first three chapters absolutely free.

Qualifications for becoming a director

In the UK you must be over 16 years old

You cannot also be the company’s auditor

You must not be an undischarged bankrupt

You must not be disqualified from being a director by a court order

Disqualification

You can be disqualified from being a director if you don’t meet your legal responsibilities, including.

 

Allowing the company to continue trading when it can’t pay its debts

Not keeping proper company accounting records

Not sending accounts and returns to Companies House

Not paying tax owed by the company

Using company money or assets for personal benefit

 

If you are disqualified, it could be from two to 15 years.

Shadow Director

You can take on the liabilities of a director unknowingly by becoming what is known as a ‘shadow director’ if the directors of a limited company are accustomed to acting in accordance with your directions or instructions.

 

However, professional advisors giving advice in their professional capacity are specifically excluded from the definition of a shadow director in UK companies legislation. Make sure that you are clear about your status.

Ready to make a positive contribution at board level?

Join the Directors' Academy for instant access to:

  • Free reports to launch you on your development journey
  • More than 20 videos answering questions from directors around the world
  • Timely, topical Webinars on Wednesdays to increase your awareness
  • PLUS, courses, resources, news and events to achieve more confidence, more competence, more quickly

Personal qualities 

Effective and persuasive communicator

Socially competent with a deft touch of humour

Independent of mind

A good listener

Democratic in balancing the interests of shareholders against those of others involved in the business

An achiever in his/her chosen field

Constructive in expressing ideas

Positive in making statements and proposals

Job-related competencies

Strategic expertise

Accounting and finance

Financial and market awareness

Legal

Managing risk

Managing people and achieving change

Industry knowledge

 

You don't need all these yourself, but it is useful to identify your strengths.

The New Director's Induction Pack

The New Director's Induction Pack

Comprehensive information pack covering fundamental knowledge, how to become a director and what to do when offered a directorship.

Directors' exposure to risk

It is important to understand that limited liability applies to the company; it does not apply to the directors. It is important that you understand this and ensure that your board keeps proper records and follows proper processes and procedures.

 

Although in most cases it will be the company that takes – or does not take – actions that put it at risk, there are certain circumstances when that risk can pass to the directors.  It is important that you take steps to ensure that you are aware of such risks and protect yourself by properly considering the implications of decisions and by keeping proper minuted records of both the board’s considerations and their decisions.

 

If you disagree with a decision, even if you are outvoted, you can still be liable for the results. Make sure that your objection is recorded!

 

Financial risk for directors and boards

Your biggest risk is likely to be financial.  The board must ensure that it can reasonably expect to be able to pay its creditors. The board must be constantly vigilant about wrongful trading, overtrading or trading fraudulently.

 

It is an offence for a company to continue to trade while insolvent. Further, it is also an offence to enter into an agreement where doing so would result in the company becoming insolvent; if it does, then the directors can become personally liable for those debts incurred after the date that it became insolvent.

Should a company get into financial difficulties the board is expected to minimise creditors’ losses, and should take legal and/or financial advice on the best and most prudent courses of action.

 

As a director you should at all times be able to demonstrate that the board has been exercising reasonable care, skill and diligence and that the directors have had regard to the likely consequences of any decision in the long term.

 

Other risks

Directors can also be liable if the company fails to implement proper processes covering:

  • Health and safety
  • Employment law
  • Control and disposal of hazardous waste
  • Modern slavery

In the UK a director may also be liable for failure by the company to make required filings at Companies House.

 

You can mitigate these risks by taking out professional indemnity insurance and learning to become a professional and effective director. Further, you should exercise your right to obtain professional advice, either from company officers or independent professionals.

Online training takes place at The Directors' Academy

Join the Directors' Academy for instant access to:

  • Free reports to launch you on your development journey
  • More than 20 videos answering questions from directors around the world
  • Timely, topical Webinars on Wednesdays to increase your awareness
  • PLUS, courses, resources, news and events to achieve more confidence, more competence, more quickly

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