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Two companies, same director

What’s the law?

There’s nothing to stop you from being a director of as many companies as you like. However, it’s worth noting that the government has been mulling over a cap on the number of directorships that an individual can hold concurrently, in order to reduce fraud.

Companies Act 2006. This piece of legislation outlines the seven duties you must perform as a director (see The next step ). Every director must: (1) act within their powers; (2) promote the success of the company; (3) exercise independent judgement; (4) exercise reasonable skill, care and diligence; (5) avoid conflicts of interest; (6) not accept benefits from third parties; and (7) declare the nature and extent of any interest in a proposed transaction or arrangement.

Anything else? There are also other obligations imposed on directors, such as a duty of confidentiality, responsibilities relating to health, safety and welfare and work, as well as environmental and anti-corruption legislation. Tip.  Failure to comply with these legal obligations can lead to prosecution, fines or disqualification from taking up further directorships.

Divided loyalties

The duties above highlight the difference between being a director and being a shareholder: the latter can act in their own self-interest, but the former always needs to put the company’s best interests first. Given the duties you have as a director, you will need to carefully consider how your current company will feel about your new role and whether you can juggle the requirements and responsibilities of each.

Hands off

Much will depend on the type of director you are. If you’re an executive director, then you will likely be firmly tied in to the company with little room for manoeuvre. Alternatively, you may be less hands-on, e.g. a non-executive director, with greater flexibility to pursue other roles. Tip. Dig out any service agreement/contract of employment that you might have. Depending on your seniority, it’s likely to say that you must devote all your time and energy to the company. There may be restrictive covenants that restrict what you can and can’t do, e.g. you may be barred from working for competitor businesses. Don’t overlook the company’s Articles as they may attempt to curb the ability of the company’s directors to do other things.

All clear

If things stack up, there are still some hurdles to overcome. These include: does the other company have directors’ and officers’ insurance? Make sure you are comfortable with the level of cover ( yr.11, iss.8, pg.5 , see The next step ). Given your responsibilities as a director you will also want to see management accounts and any other important information regarding the overall position of the company. The last thing you want is to join a sinking ship as this could have reputational repercussions for you. Tip. Seek advice, e.g. from an accountant, on these matters if you are unsure of anything; ask for what is being expected of you in writing. Tip. You should be granted full access to all board minutes and company advisors; if not then it’s best to walk away.

For directors’ duties and a previous article on insurance, visit http://tipsandadvice-business.co.uk/download (CD 21.21.07).