Company formation advice

[mariong]

Hi, I have recently started up an internet business with another person in the UK. The concept of the website may be looked at as being controversial by some people and as such I am a bit worried about finalising and agreeing to become a Director of this company when my colleague and I form the limited company.

She will have the majority % of the business as the site is her idea, and she is the one putting in the financial input at the moment - I have developed and maintained the website and will continue doing so. She has the idea to launch the site in other countries apart from the UK shortly. I am basically worried about legal repercussions that could occur from the website as we have not found insurance companies which will insure us for the USA etc due to the varying state laws. Our disclaimer is pretty robust - but there is obviously still the possibility that people would still try to sue the website due to its perhaps "controversial" nature.

What I am basically looking for advice on is whether I should become a Director of the company or just become a shareholder. I want to ensure I keep my proposed share % pro-rata if we have investors eventually, so would like to have a say over the running of the business as have been involved from the start and my business partner doesn't have much of an idea aboiut technology or business matters, but I do not want to be responsible for any financial inputs or problems that could occur. I am also not currently resident in the UK and have a fulltime-job abroad, as such, I am worried that I will have tax issues if I become a Director of the company rather than a shareholder when the company starts to make an income.

If anyone can give me some advice as to whether I should become a Director or just become a shareholder in the company it would be greatly appreciated. I have enjoyed starting up the business and expect to maintain the website in the future - and hope to gain something from owning a % of the company - but I don't want to become a Director of the company if it is going to mean I am responsible for the companies finances and could be sued myself for things that could occur as a result of the website.

Thanks in advance for any help.

[miketombs]

If you are a director of the company and it goes into liquidation, under certain circumstances the directors can be personally liable for any unpaid company debts. That arises when the company traded whilst insolvent, and as a director you could be liable even if you had absolutely no knowledge of what was going on.

You spoke about insurance for potential claims in the USA. I presume that you are considering a situation where you may be sued if people incur damages as a result of their dealings with the company. You're probably aware that D&O (Directors and Officers) Insurance is there to protect you against those issues, but the cover can be expensive.

Without more details it's impossible to advise you whether or not you should accept a directorship, but if you do then make sure you play an active role in the management of the business, otherwise you are taking on potential liabilities without any control.

[tkessex]

It is a little difficult to offer advice without knowing exactly what the business will do - different industries can present very different obstacles.