Misunderstanding The Nature of a “Company”
Another frequently encountered set of issues and problems are those which arise from small business owners not understanding the special legal nature of a limited company or their role within it. All too often people get their accountant to set up a company for them and start trading without taking any legal advice and without realising that the company has a legal status and existence of its own and has rights and duties which are separate to those of the directors and shareholders. And likewise, the directors have a set of quite onerous duties towards the company and, in certain circumstances, can be sued by it. Many small business “owners” wear at least two hats where they are both a director and shareholder of the company, although sometimes they might only be a director but not a shareholder or they might be a shareholder but not a director. Problems often arise when they have not understood the different roles they are performing and have muddied the waters in such a way that these roles have come into conflict with each other.
It is always wise to take legal advice before forming a company or becoming a director, or if the company is already up and running, to take advice on what you should expect and what is expected of you when wearing these different “hats”.
