KNOW YOUR RESPONSIBILITIES
Going it alone offers a world of opportunities, but also a host of potential obstacles that must be negotiated.
Eyes wide open Christopher Burgon discusses the potential pitfalls you need to be aware of if you’re thinking of setting up alone
As more and more architects are setting up alone – whether through their own choice or as a result of redundancy - we speak to litigation consultant Christopher Burgon about the potential pitfalls of becoming a director and how to minimise the risks.
Christopher Burgon is a litigation consultant at Saunders Law. He has experience of a wide range of disputes affecting businesses and property owners. His experience includes complex, high value disputes and he works for a wide variety of clients including high net worth individuals, businesses, charities, housing associations and local authorities.
here are a number of ways that a business can be set up, each with different responsibilities and obligations under the law for those charged with running it. For example, you may find yourself as a partner in a partnership, as a member of a limited liability partnership, or as a director and/or a shareholder of a limited company. Traditionally, professionals such as architects and surveyors adopted partnership as the standard model for their businesses. But, in recent times this has changed significantly, with limited liability partnerships and companies becoming far more common. Here I will set out the responsibilities and potential pitfalls of being a director in a limited company. Being at the top of an
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organisation and taking decisions that matter is obviously attractive and can be personally and financially rewarding; but directors have responsibilities as well as privileges. The first is to the company itself. Under the
Companies Act 2006, a director has a duty to promote the success of the company and to exercise reasonable care, skill and diligence, while avoiding conflicts of interest and external influence.
These duties are enforceable by the company and whilst instances of a board of directors voting to bring an action against itself are rare, actions against ex-directors are not. The removal of a director requires an ordinary resolution; usually 50 percent of shareholders, which, depending on your circumstances, may leave you feeling worryingly exposed. Even if your co-directors are satisfied, any shareholder can bring an action against a director, even after he has retired, for negligence, default or breach of duty or trust, for behaviour predating a shareholder's membership. If the company goes into
liquidation, the Insolvency Act 1986 gives powers to a liquidator to bring any appropriate action against the directors of the company. A liquidator’s primary responsibility is to the company’s creditors. He has wide powers to investigate all of the company’s transactions, going back up to two years before the insolvency. A director needs to avoid criminal liability for the actions of others in the company, which can attach to directors personally where they are found (in the language of
the statutes) to have acted ‘neglectfully’ or have ‘connived’ with the offending criminal behaviour. Regulatory authorities such as the Companies Investigation Branch (CIB) of the Department for Business, Enterprise and Regulatory Reform also have wide powers of investigation, which they are often keen to use. Other statutory duties are imposed on directors under legislation as diverse as the Financial Services and Markets Act 2000, the Health and Safety at Work Act 1974, and the Environmental Protection Act 1999. Directors can of course be prosecuted personally for criminal offences such as bribery, fraud, insider dealing and price fixing. Under the recent Corporate Manslaughter and Corporate Homicide Act of 2007, directors can be found personally liable if their gross negligence causes death. Finally, directors will become personally liable to another party if there is evidence of personal dealings between them, outside of their position within the company. So, what’s the good news? Being a director has many advantages over being a sole trader or partner where you are personally liable for the business’ debts. With care, diligence, a certain amount of business acumen and sound, commercially based legal advice, there is no reason why any director
should fall foul of the law. n
ArchitectNews.co.uk | Architects Choice | 37
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