December 2, 2016 Nominee Directors? Not in UK law
When is a director not a director? Yes you’re right, this is a trick question but the rights and responsibilities of company directorship is an area which can be misunderstood. Particularly so when people have been persuaded to add their names to the list of corporate directors without taking time to investigate the legal implications.
In our last article we highlighted the ever-growing number of companies within the UK. It’s a subject which is very much in the news; with the Chancellor in his autumn statement commenting about the way in which the trend towards incorporation has contributed to the erosion of business revenues. It’s also a subject which hit the headlines in November when The Independent picked up on a Reuters report to the effect that the residents of one small town in England hold directorships in more than 1000 companies.
Often little more than shell organisations supporting online gambling or sales of “pop-up get-rich-quick schemes,” having a UK base made it easier for businesses of this nature to operate within Europe. According to The Independent’s article, residents who agreed to act as directors for these organisations were in many cases unaware of the nature of the business and simply acted as forwarding agents for correspondence. In effect they believe that they were acting as nominee directors with no legal rights or responsibilities.
Elemental CoSec Director Nick Lindsay was invited to contribute to the nominee director question in The Independent’s article. He commented that “Under UK law, there is no such concept as a nominee director” adding “Any director, whether they are executive or non-executive, owes the same duties.”
Director’s duties are set down in law and include:
- a duty to act within powers,
- a duty to promote the success of the company,
- a duty to exercise independent judgement and
- a duty to exercise reasonable care, skill and diligence
When an individual takes on a company directorship they are accepting a legally binding obligation to act in the best interests of that organisation. Failing to properly exercise the duties of a director can lead to fines or even a term of imprisonment and although, according to The Independent, no sanctions have been issued against the directors mentioned in the article the authorities will act if they believe that directors have failed in their duties to their organisation. When is a director not a director? When you are invited to become a company director it is wise to take time to understand the implications before you accept the position.