I have been asked to become a director of a business
Discussion
Hi all,
I have been approached by another business and asked if I would consider joining their business as a Director. It’s a small Limited company with a turnover of about £750k. There are no debts, I have been told, and I have also been told I can see the accounts - not that I would be liable for anything, right?
Anyway, what should I be aware of in becoming a Director, what are the positives and negatives?
Sorry for the lame question, but I have not looked too much in to it before as I never thought I would have the opportunity.
Thanks
I have been approached by another business and asked if I would consider joining their business as a Director. It’s a small Limited company with a turnover of about £750k. There are no debts, I have been told, and I have also been told I can see the accounts - not that I would be liable for anything, right?
Anyway, what should I be aware of in becoming a Director, what are the positives and negatives?
Sorry for the lame question, but I have not looked too much in to it before as I never thought I would have the opportunity.
Thanks
Extra 300 Driver said:
not that I would be liable for anything, right?
Wrong.Start reading here:
http://www.businesslink.gov.uk/bdotg/action/layer?...
If you become a "formal" director of a company, you become respnsible for the business decisions made by that company - especially for decisions made from the date you joined the board. You could even find yourself exposed legally regarding decisions made BEFORE you became a director.
Thanks chaps. The business has appointed accountants which I am going to visit soon. As I understand it they are tasked with most of those things which are mentioned on the Business Link site, but I understand I will be responsible if it all goes belly up, so it's really about managing your suppliers!
But, reading about the conflict of interest is good. Most of it seems common sense to me, running the business in a proper and skilful way without deliberately running it in to the ground!
But, reading about the conflict of interest is good. Most of it seems common sense to me, running the business in a proper and skilful way without deliberately running it in to the ground!
Unless the accountants are also acting as "auditors" of the company (which they probably are not), they have precious little responsibility for ANYTHING shown in the accounts they prepare - and no responsibility for the conduct of the company.
The directors are the "main men" where company responsibility is concerned.
The directors are the "main men" where company responsibility is concerned.
Eric Mc said:
Unless the accountants are also acting as "auditors" of the company (which they probably are not), they have precious little responsibility for ANYTHING shown in the accounts they prepare - and no responsibility for the conduct of the company.
The directors are the "main men" where company responsibility is concerned.
Yep, understand that. They are doing the task, but the directors are still responsible for their actions.The directors are the "main men" where company responsibility is concerned.
Correct.
Accountants only have a direct responsibility for the accounts if they have signed off a formal audit report. Most UK limited companies (around 90%) are not obliged to have their accounts audited and most avail of this exemption. Whilst this (in theory) helps reduce accountancy and auditing charges, it does make the directors solely responsible for the presentation of the accounts and the figures contained within them.
The question you have to resolve regarding this offer is "What's in it for me?".
Are they offering any shares to you and, if so, will you be able to partake in any dividend pay outs?
Accountants only have a direct responsibility for the accounts if they have signed off a formal audit report. Most UK limited companies (around 90%) are not obliged to have their accounts audited and most avail of this exemption. Whilst this (in theory) helps reduce accountancy and auditing charges, it does make the directors solely responsible for the presentation of the accounts and the figures contained within them.
The question you have to resolve regarding this offer is "What's in it for me?".
Are they offering any shares to you and, if so, will you be able to partake in any dividend pay outs?
Edited by Eric Mc on Monday 22 February 08:32
Eric Mc said:
Correct.
The question you have to resolve regarding this offer is "What's in it for me?".
Are they offering any shares to you and, if so, will you be able to partake in any dividend pay outs?
Yes they are, they are offering to pay be about £5k/yr and the rest in dividends but I will have about 20 of 100 shares. There will be then three directors and a company secretary.The question you have to resolve regarding this offer is "What's in it for me?".
Are they offering any shares to you and, if so, will you be able to partake in any dividend pay outs?
Edited by Eric Mc on Monday 22 February 08:32
Will you have income outside of the company? This is important because the reason why they have chosen the £5,0000 level for "salary" is because they will not need to deduct any PAYE or NI on a salary of under £6,000 - assuming that this salary is your only or main salary.
Dividends can only be paid out of profits so they are less reliable.
Once you start receiving dividends, you will almost definitely have to start completing Self Assessment tax returns - if you don't already do so.
Dividends can only be paid out of profits so they are less reliable.
Once you start receiving dividends, you will almost definitely have to start completing Self Assessment tax returns - if you don't already do so.
Thanks Eric,
I have my wifes income! I have been unelployed for about 6 months so this is looking very actractive. I will run my own car, claim 40p/mile but I dont do much milage.
So I wont pay any NI or tax? The business has good reserves of cash with long term contracts in place, and they have never posted a loss but they have only been active for about 3 years.
I have my wifes income! I have been unelployed for about 6 months so this is looking very actractive. I will run my own car, claim 40p/mile but I dont do much milage.
So I wont pay any NI or tax? The business has good reserves of cash with long term contracts in place, and they have never posted a loss but they have only been active for about 3 years.
You shouldn't be subject to PAYE or NI on a salary of £5,000 for the reasons mentioned.
If and when you receive a dividend you will be subject to Income Tax only on the dividend (no NI is ever due on dividends as they are classified as investment income rather than earned income).
The even better news is that, if the dividends you receive in the tax year, combined with your £5,000 salary (and any other extraneous non-company income, such as bank interest received) is not sufficient to push you over the higher earnings threshold, you will not pay a single penny in Income Tax.
The threshold for 2009/10 (inclusive of the personal tax allowance of £6,475) comes to £43,975. So, if your total persomnal Gross Income for the year is less than this, you pay absolutely NOTHING tax or NI wise.
If and when you receive a dividend you will be subject to Income Tax only on the dividend (no NI is ever due on dividends as they are classified as investment income rather than earned income).
The even better news is that, if the dividends you receive in the tax year, combined with your £5,000 salary (and any other extraneous non-company income, such as bank interest received) is not sufficient to push you over the higher earnings threshold, you will not pay a single penny in Income Tax.
The threshold for 2009/10 (inclusive of the personal tax allowance of £6,475) comes to £43,975. So, if your total persomnal Gross Income for the year is less than this, you pay absolutely NOTHING tax or NI wise.
Edited by Eric Mc on Monday 22 February 08:56
A friend of mine was asked to become a director of the company of which he was sales manager. He's a cautious man but took it on (which required paying some money in I believe). About a year later, he quit and reverted to sales manager because the benefits, if any, didn't outweigh the extra complexity and responsibility.
So I'd ask what their motives are in inviting you. Unless you know them and the company very well indeed, the boring £35K option looks sounder IMHO.
So I'd ask what their motives are in inviting you. Unless you know them and the company very well indeed, the boring £35K option looks sounder IMHO.
Eric Mc said:
You shouldn't be subject to PAYE or NI on a salary of £5,000 for the reasons mentioned.
If and when you receive a dividend you will be subject to Income Tax only on the dividend (no NI is ever due on dividends as they are classified as investment income rather than earned income).
The even better news is that, if the dividends you receive in the tax year, combined with your £5,000 salary (and any other extraneous non-company income, such as bank interest received) is not sufficient to push you over the higher earnings threshold, you will not pay a single penny in Income Tax.
The threshold for 2009/10 (inclusive of the personal tax allowance of £6,475) comes to £43,975. So, if your total persomnal Gross Income for the year is less than this, you pay absolutely NOTHING tax or NI wise.
Sorry to butt in on this one Eric, but how is the OP's sitiation different from the one that i posted here at the weekend : http://www.pistonheads.com/gassing/topic.asp?h=0&a... Implications for Share options ?If and when you receive a dividend you will be subject to Income Tax only on the dividend (no NI is ever due on dividends as they are classified as investment income rather than earned income).
The even better news is that, if the dividends you receive in the tax year, combined with your £5,000 salary (and any other extraneous non-company income, such as bank interest received) is not sufficient to push you over the higher earnings threshold, you will not pay a single penny in Income Tax.
The threshold for 2009/10 (inclusive of the personal tax allowance of £6,475) comes to £43,975. So, if your total persomnal Gross Income for the year is less than this, you pay absolutely NOTHING tax or NI wise.
Edited by Eric Mc on Monday 22 February 08:56
The OP appears to be saying that he will be taking a small salary in return for 20% stake in the company. In this case you state that he should be OK and not be liable for much tax, whereas in my case things sounded a lot more complicated and that my working for a nominal salary in return for equity in the company would not go down well with HMRC and I would most likely be taxed at 40% value of the shares I would aquire.
Were you being offered the deal as part of a salary package?
Were you being offered a directorship in the company (i.e. an element of decision making and control over how the business is being run)?
What voting rights come with the share package you have been offered?
HMRC do differentiate between what are genuine cases of someone becoming involved in the management and ownership of a business as opposed to someone who is merely being offered shares or share options as part of a remuneration package.
It's quite a complicated area and HMRC can get very aggressive when the arrangement is seen purely as a means of escaping a commitment to paying salaries and the related PAYE and NIC.
Were you being offered a directorship in the company (i.e. an element of decision making and control over how the business is being run)?
What voting rights come with the share package you have been offered?
HMRC do differentiate between what are genuine cases of someone becoming involved in the management and ownership of a business as opposed to someone who is merely being offered shares or share options as part of a remuneration package.
It's quite a complicated area and HMRC can get very aggressive when the arrangement is seen purely as a means of escaping a commitment to paying salaries and the related PAYE and NIC.
Edited by Eric Mc on Monday 22 February 10:46
Eric Mc said:
Were you being offered the deal as part of a salary package?
Were you being offered a directorship in the company (i.e. an element of decision making and control over how the business is being run)?
What voting rights come with the share package you have been offered?
HMRC do differentiate between what are genuine cases of someone becoming involved in the management and ownership of a business as opposed to someone who is merely being offered shares or share options as part of a remuneration package.
It's quite a complicated area and HMRC can get very aggressive when the arrangement is seen purely as a means of escaping a commitment to paying salaries and the related PAYE and NIC.
The company in question want me to become a director and help them grow the business and have offered equity in the company for me to join them. I would need to purchase the shares after 12 months at an agreed (attractive) price. I would also be earning a good salary.Were you being offered a directorship in the company (i.e. an element of decision making and control over how the business is being run)?
What voting rights come with the share package you have been offered?
HMRC do differentiate between what are genuine cases of someone becoming involved in the management and ownership of a business as opposed to someone who is merely being offered shares or share options as part of a remuneration package.
It's quite a complicated area and HMRC can get very aggressive when the arrangement is seen purely as a means of escaping a commitment to paying salaries and the related PAYE and NIC.
Edited by Eric Mc on Monday 22 February 10:46
My thoughts were to offer to forego my salary and be given the shares at no cost after the first 12 months.
... I can't really see the difference between my proposed arrangement and the OP's? In both cases we would have a small/no salary and take a % of the company shares instead? How do HMRC differentiate between a "genuine case" and a non genuine case?
Well, then that MAY make a difference.
All I was really trying to point out is that this area can be very sensitive and complicated and open to enquiry by HMRC - especially if the individual APPEARS to be being hired as an employee rather than a boda fide "owner" or "co-owner" of the company.
The current latest posting on "your" thread shows just how complicated this whole area is.
My job as an accountant is to point out the difficulties that such schemes can cause. Many people enter into them without having a single clue as to how complicated an area this can be - and it can work out VERY erxpensive if HMRC block the scheme.
All I was really trying to point out is that this area can be very sensitive and complicated and open to enquiry by HMRC - especially if the individual APPEARS to be being hired as an employee rather than a boda fide "owner" or "co-owner" of the company.
The current latest posting on "your" thread shows just how complicated this whole area is.
My job as an accountant is to point out the difficulties that such schemes can cause. Many people enter into them without having a single clue as to how complicated an area this can be - and it can work out VERY erxpensive if HMRC block the scheme.
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