Asked to be company director for credit rating

zenmaster

I did this once for similar reasons. Never again.

I was supposed to be hands off and there in name only so that my friend could get a bank account.

He did not file an annual return. That is a legal requirement which carries possible jail time, incumbent on all directors. I rang him in plenty of time to remind him about it and he said he had been told he didn't need to do it for 18 months. That is the accounting period for startups - nothing to do with the annual return. I told him this but he still did nothing. Eventually, with 2 days to go, I got his Government Gateway password from him and did it myself (and paid for it).

6 months later he failed to file the accounts. Since he had not traded all he had to do was file it as a dormant company so, once again, I did it (and paid). I also took the opportunity to resign as a director.

Shorty afterwards the company was wound up.

Risky business!

crazyguy

Steel wrote: »

That could work.

I don't know why he hasn't done this - maybe he pays himself the highest he can so he can pay off his debts and there isn't as much cash in the business as he would need to cover up to 10K worth of goods. I don't believe the business even has a credit card he could buy the goods with.

I know that he is an official trader for one of the brands of goods he sells but he also trades in many other brands in the secondhand market. I want to know how much of his business every month is split between these in case the distributor of the new goods dumps their agreement and refuses to allow him to trade its goods any more.

Perhaps then there is more to this than you have been told as if it were a good business then he should have by rights built up a good rapport with his supplier and also should be able to secure some sort of credit facility from them, most business to business transactions made on a regular basis have some form of credit facility in place.

Annisele

Steel wrote: »

Annisele - It does sound as if they want a personal guarantee, which I'm surprised about as the business is taking between £5k-£10k a month, has less than £100 fixed outgoings and has no liabilities. No loans, no overdrafts.

I'm not all that surprised. Turnover is one thing, but from what you say the business doesn't actually have any assets. So, if the bank doesn't get a personal guarantee it has almost no security.

I suspect that in a roundabout way your relative is asking the bank for credit. If he's trying to take payment by credit cards, and one of his customers makes a section 75 claim / chargeback / claims money some other way (I'm not an expert here!) chances are the bank may have to pay back the customer and then claim from your relative - which won't work if your relative has no money.

Steel_2

zenmaster wrote: »

I did this once for similar reasons. Never again.

I was supposed to be hands off and there in name only so that my friend could get a bank account.

He did not file an annual return. That is a legal requirement which carries possible jail time, incumbent on all directors. I rang him in plenty of time to remind him about it and he said he had been told he didn't need to do it for 18 months. That is the accounting period for startups - nothing to do with the annual return. I told him this but he still did nothing. Eventually, with 2 days to go, I got his Government Gateway password from him and did it myself (and paid for it).

6 months later he failed to file the accounts. Since he had not traded all he had to do was file it as a dormant company so, once again, I did it (and paid). I also took the opportunity to resign as a director.

Shorty afterwards the company was wound up.

Risky business!

So, if hubby is a director from say middle of October to beginning of January, and plays no further role in the company, would he still be liable if his relation does not file any tax returns in the future after hubby has stepped down?

Or is he liable only for whatever happens for the duration of the time he is a director?

I can't see this happening, as the relation has always filed a return for all of his business as they've been due and he is very committed to being successfully self-employed. He needs to be - he doesn't want a job and has debts to pay off. Plus the fact he loves what he does - it's his hobby as well as his business.

But I guess you never know.

Steel_2

crazyguy wrote: »

Perhaps then there is more to this than you have been told as if it were a good business then he should have by rights built up a good rapport with his supplier and also should be able to secure some sort of credit facility from them, most business to business transactions made on a regular basis have some form of credit facility in place.

yes, I'm starting to think that.

Steel_2

Annisele wrote: »

I'm not all that surprised. Turnover is one thing, but from what you say the business doesn't actually have any assets. So, if the bank doesn't get a personal guarantee it has almost no security.

I suspect that in a roundabout way your relative is asking the bank for credit. If he's trying to take payment by credit cards, and one of his customers makes a section 75 claim / chargeback / claims money some other way (I'm not an expert here!) chances are the bank may have to pay back the customer and then claim from your relative - which won't work if your relative has no money.

That makes sense.

Steel_2

crazyguy wrote: »

Perhaps then there is more to this than you have been told as if it were a good business then he should have by rights built up a good rapport with his supplier and also should be able to secure some sort of credit facility from them, most business to business transactions made on a regular basis have some form of credit facility in place.

Thinking about this, it's not about securing credit facilities to buy the stock from the supplier. He has the stock already, it's the length of time it's taking for payments from customers to clear before he can send stuff out that is the issue.

And the fact he can't accept credit card payments direct to his bank account for large orders that someone needs delivered quickly.

I'll ask hubby to speak to him Crazyguy about releasing the goods when the customer's money has cleared in the third party's account.

crazyguy

Steel wrote: »

yes, I'm starting to think that.

If it were me I would want to see all the bookwork and ask a lot more questions to him as per all of the above comments before thinking about becoming a Director, also I think if he signs on as one with a view to then sign back off within a few months then it may be ok providing he has not signed anything with the banks or credit card clearing Companies.

You should spend a lot of time looking into all of this first.

Steel_2

crazyguy wrote: »

If it were me I would want to see all the bookwork and ask a lot more questions to him as per all of the above comments before thinking about becoming a Director, also I think if he signs on as one with a view to then sign back off within a few months then it may be ok providing he has not signed anything with the banks or credit card clearing Companies.

You should spend a lot of time looking into all of this first.

Agree, although ideally there needs to be a solution soon as Christmas is approaching.

I'm really not inclined to do what is being asked, but it is hubby's close relation not mine and there's a sense of obligation and support involved for him.

I can't see hubby being a Director and not being asked to sign anything. If the bank want a decent credit score involved they will want the person who owns it to be personally liable and that means we will cop the fall out if something goes wrong during the time hubby is a Director.

He already has personal experience of this with another relation, who signed a personal guarantee on something many years ago when they ran a business together and left them both penniless with massive debts to pay off when the company folded.

crazyguy

Steel wrote: »

Agree, although ideally there needs to be a solution soon as Christmas is approaching.

I'm really not inclined to do what is being asked, but it is hubby's close relation not mine and there's a sense of obligation and support involved for him.

I can't see hubby being a Director and not being asked to sign anything. If the bank want a decent credit score involved they will want the person who owns it to be personally liable and that means we will cop the fall out if something goes wrong during the time hubby is a Director.

He already has personal experience of this with another relation, who signed a personal guarantee on something many years ago when they ran a business together and left them both penniless with massive debts to pay off when the company folded.

Being totaly honest with you here that pretty much sums up my thoughts as to why this is a bad idea.