What are the risks of being the board?

March 16, 2009 11:55 AM

A friend of mine has been asked by her boss to take on an odd job, and we can't figure out if she should agree to it. He wants her to become director of a company she wouldn't otherwise be involved with.

She works as an administrative assistant for a guy who runs internet marketing websites. He is also a shareholder in a related company. The current director of this company is leaving Canada, but they need a Canadian director. He is asking that she become the director. Her only duties would be to sign forms, and be named on the company bank account. He is offering to pay her usual rate for the time she spends signing a couple forms a year. Does this sound fishy?

She can't really afford a lawyer, so I was hoping you smart people could help answer these questions:

1 - how this would impact her legally (if at all), on her personal taxes etc.
2 - if she would be liable for the company
3 - if her boss is asking her to do something that usually would require a pay raise (but he is trying to cut corners and trick her into new responsibilities without a pay raise)

Or anything else we might not have thought of!

Thanks!

posted by 5_13_23_42_69_666 to work & money (24 comments total)

I don't know about Canada, but I would assume as the signing authority for the company, your friend would be exposed to legal liability if anything she signed were not kosher.
posted by zippy at 12:01 PM on March 16 [1 favorite]

I can't speak to the others, but #2 is a resounding yes.

I'm positive she would be liable for employees wages. I know there's other things, but I don't remember them offhand. But in general, yes to being liable. For what it's worth, I took a look at the laws regarding this a few months ago and advised a friend not to become a director: that was a different situation in that it would have been more like a "promotion" for him instead of a secondary job. But still.

Check out this for some proper info as of 2000.
posted by Lemurrhea at 12:02 PM on March 16

Yeah... I wouldn't do it. A friend of mine was made director of a business of his brother's during the .com silliness when a couple of other directors left and the brother had tons of reasons why *he* couldn't do it. Long story short, company faltered, staff got laid off, filed actions, some *irregularities* were discovered in payments to the CRA, etc. Now friend owes $700,000 to various parties and lost his house. Doesn't speak to the brother anymore. But the brother still has his house.

So yeah, don't do it. And what really jumps out at me is that he's offering to pay her at her usual rate for these duties(!). He's asking her to assume magnitudes higher personal risk than her current duties and doesn't even offer her a token director's salary as potential compensation for the risk? Sounds very much to me like he's looking for a sucker, or one of these clowns who thinks nothing bad could ever happen. In the first case, he's malicious, the second he's an idiot. Not sure which is worse.
posted by barc0001 at 12:16 PM on March 16

Oh, and I didn't really clarify except obliquely (like referencing CRA, etc), but all of that with my friend went down in Canada.
posted by barc0001 at 12:17 PM on March 16

The movie Fun with Dick and Jane comes to mind....setting up someone to take the fall for the company. Just an observation.
posted by AltReality at 12:28 PM on March 16

I work for a Canadian company, and I'd have to be signed on as a director/signatory for the account to even get a comp,any credit card in my name (almost impossible to travel in the states without your own, annoyingly). On investigation, it seems that if I did so, they'd have to assess my credit to put me on there, and from that point on, my credit is tied to the companies - ie the company can screw my credit.

At that stage, I told them to forget the idea. She WILL be liable for the company and this WILL affect her personally. Don't do it, especially not for some bullshit extra couple of hours admin work as recompense. The guy is trying to scam her.

As mentioned above, it is a massive deal to be a director of a company. She should not do this.
posted by Brockles at 12:28 PM on March 16

Specific example : If the company doesn't remit gst it collects or payroll taxes it owes, - CRA will hold her as a director responsible.
posted by dripped at 12:41 PM on March 16

Those would not be her only duties. Statute imposes a bunch of duties and responsibilities on directors, including the duty to exercise a reasonable degree of care, diligence and skill. If she had no involvement in the company beyond signing a few forms each year, she'd probably be breaching at least this duty, if not more.

This (96 page pdf) is a 2005 guide to directors' responsibilities in Canada if you want to know more.

Executive summary: she shouldn't do it.
posted by inire at 12:42 PM on March 16 [2 favorites]

She should also see a lawyer as soon as possible, pony up $200 for an hour, and explain what is going on. This is totally inappropriate for her employer to be doing this.
posted by KokuRyu at 12:56 PM on March 16

Tell your friend, and her boss, that a Nova Scotia company might be a solution (it can operate in any province once it gets a licence there) as they allow non-Canadian directors.

Otherwise I have to agree with everyone that this is not a recommended course of action for all of the liability issues raised, not to mention the added complication of the link to online gambling activity and the uncertainty surrounding both tax questions and general legality issues in Canada.

On the other hand, don't be too quick to ascribe malicious motives to her boss. He's probably just a shoot-from-the-hip entrepreneur who offered her the position because it would be an easy solution. (i.e. without realising that this would substantially change her risks etc.)
posted by gwpcasey at 1:05 PM on March 16

Yeah...he's trying to take her for a ride. Directors have a lot of legal responsibility in Canada. I would say no, and start looking for a new job. This reeks of scam.
posted by dejah420 at 1:07 PM on March 16

I had someone consult me. He had been named as president of a corporation by his boss, without his knowledge. Now he is co-liable, with his boss, for over $175,000 in unpaid payroll taxes.
posted by megatherium at 1:15 PM on March 16

I have no clue re: any of your specifics, but I don't think there is ever a time in life when "I just need to put your name on this, no big deal" isn't a horrible horrible horrible idea.
posted by drjimmy11 at 1:31 PM on March 16 [2 favorites]

I don't know about Canadian laws or taxes - but gut feeling says no way, no way, no way. I can't even fathom the list of what she could get stuck with - never mind the fact that he's offering her her usual rate for the time it takes to sign forms? No, no, no.

If she is seriously considering it, I know she can't afford a lawyer, but I really don't think she can say yes to this without consulting one (and possibly an accountant as well).
posted by KAS at 1:56 PM on March 16

Okay, so we're all agreed that this is a bad idea (tm). The next question is what your friend should do to get out of this. I suggest something like "I really appreciate your thinking of me for this position. I've consulted a lawyer, and based on his/her advice, I'm unfortunately not willing to take the position."

That lawyer consulted could be someone she pays $200, or simply a friend or a friend of a friend, or possibly a lawyer who advertises free consultations; she probably should have a name in case the boss asks (not that he'd ever actually call the lawyer, but it would be helpful to have a name, and for that name to be legitimate in case he actually did call - lawyers ethically can't disclose discussions with their clients, but can confirm that someone was a client, I think - but I'm not a lawyer).

And then if the boss presses here about what concerns her, she should simply do the "broken record" thing - thank him for suggesting the position, but based on the advice of the lawyer, she has decided to decline. And if he presses her about what the lawyer said, she should just avoid specifics by saying that she just wouldn't feel comfortable being in that position.
posted by WestCoaster at 2:02 PM on March 16

If she can't afford a lawyer - it's a bad idea.

If they're not willing to pay a lawyer of her choosing, it's because of nefarious reasons, don't you both think?
posted by filmgeek at 3:13 PM on March 16

wow - you guys are beyond awesome - thanks so much! I didn't get the impression that her job is at risk if she refuses, but that certainly is something to think about. I know that she's talking to him about it again today to get more info, so I'll update here if anything interesting arises.
posted by 5_13_23_42_69_666 at 4:51 PM on March 16

She should get some of this in writing (even by email) if she can if she is concerned that her job may be at risk. There is no way at all he can legally sack someone for refusing to take financial responsibility for another company!

As mentioned, this is either deliberate shadiness (at best its a tax dodge), or its over-enthusiasm/creative thinking through lack of knowledge. I'm not sure which is worse in a boss, to be honest.
posted by Brockles at 4:55 PM on March 16

I disagree with the majority. There's nothing inherently shady about this. (What I know about this is US-specific, but. . .) people become directors for all kinds of reasons, and it's common for employees of one company to sit on the board of a related company. Her salary as director should be paid by the company whose board she sits on, probably.

In addition, it would be unusual for a director to become responsible for the company's debts. In the US at least directors and officers have no responsibility for a corporation's liabilities. However, a director is responsible to shareholders to exercise some diligence, and could wind up liable for any failures that result in losses. Therefore, your friend should talk to a lawyer to figure out the full extent of her exposure here. She should inform the boss of her concerns and insist he pay her legal bills as a condition of her considering the position.
posted by grobstein at 6:36 PM on March 16

Your entire disagreement seems to be based on the (quite different, it appears) US laws, not the oft mentioned Canadian implications in the previous answers, though. Especially this bit:

it would be unusual for a director to become responsible for the company's debts.

Kind of a fundamental difference, and knowing the laws of the country in question is pretty fundamental to giving an accurate answer, is it not?
posted by Brockles at 6:42 PM on March 16 [1 favorite]

I put the limitations of my expertise on the table, twice, and counseled talking to a lawyer. If you assume that everyone in this thread is right about Canadian law, then my disagreement arises entirely from differences between US and Canada law. But that might not be a watertight assumption, capisci?

For example, your answer, which is essentially anecdotal, might have everything to do with getting credit on a company account, and nothing to do with the duties to which directors are necessarily susceptible to.
posted by grobstein at 7:07 PM on March 16

Ah, but grobstein, my answer was direct observed evidence of someone on a Canadian board as director getting screwed to the tune of $700,000. In Canada, if you are on a board as director, you are liable financially for any and all improprieties the company under your stewardship as director may incur. Company plays fast and loose with payroll? That comes out of your pocket. Didn't remit GST? Out of your pocket. Anything else weird? Oh, you bet, out of your pocket. And the best part? When the CRA goes after you for stuff like missing payroll tax, it's on you like glue forever. Even if you declare bankruptcy, this is one debt that will follow you to your grave.

Simply put, in Canada, based on what the OP is asking, there is NO upside and a metric tonne of risk to agreeing to this request, especially for someone who has little or no knowledge of the duties and obligations of a director (whom the OP's friend is, because if they did have knowledge, this question never would have been asked).
posted by barc0001 at 8:50 PM on March 16

this isn't just fishy - it's giant-tentacled-sea-monstery!
posted by 5_13_23_42_69_666 at 8:54 PM on March 16

For example, your answer, which is essentially anecdotal,... and entirely consisting of having to undertake precisely and exactly the same responsibility and level of risk that the OP is describing her friend as being asked to take. It's the exact same process - I'd have to be considered as a director to have a company credit card in my name, and the level of risk I'd have to take is significant and echoed by all other posters familiar with Canadian law.

But apart from that, 100% spot on with your foreign law relevance. Do you have any Patagonian company law that may help this question?
posted by Brockles at 9:17 PM on March 16