| Undertaking a company formation with the | | | | means a contract under which- |
| intention of starting a new private limited | | | | (a) a director of the company undertakes |
| company can be a daunting and exciting time. | | | | personally to perform services (as director or |
| People carry out a company formation for many | | | | otherwise) for the company, or for a subsidiary |
| different reasons, but generally every one of | | | | of the company, or |
| those people has the intention to make money. | | | | (b) services (as director or otherwise) that a |
| An essential part of making money is running the | | | | director of the company undertakes personally to |
| most tax efficient company possible. The other | | | | perform are made available by a third party to |
| part is complying with all the company regulations | | | | the company, or to a subsidiary of the company." |
| to ensure avoidance of unnecessary and | | | | S.228: |
| damaging fines and penalties. Unfortunately many | | | | "... (1)A company must keep available for |
| business men and women are unaware of the | | | | inspection- |
| legal requirements of running a business. Ignorance | | | | (a) a copy of every director's service contract |
| of the law is no excuse. | | | | with the company or with a subsidiary of the |
| Most people know that if you employ people to | | | | company..." |
| help run your business then you are legally | | | | "... (5) If default is made in...an offence is |
| required to abide by employment law, offering | | | | committed by every officer of the company who |
| certain contractual obligations, ensuring health and | | | | is in default." |
| safety regulations are adhered to and more. Many | | | | "...(6) A person guilty of an offence under this |
| people carrying out a company formation do so | | | | section is liable on summary conviction to a fine |
| without the intention of hiring employees (to start | | | | not exceeding level 3 on the standard scale..." |
| with at least). There may be one or two | | | | The standard scale is a fine structure used across |
| directors, but no more. So they don't think the | | | | various areas of legislation to punish guilty parties |
| employment law applies. However, this is not the | | | | where the law is not properly adhered to. The |
| case. All directors of a limited company are | | | | scale currently reaches £5,000 at the top level. |
| deemed to be employees of that company. As | | | | Level 3 reaches £1,000, which is a hefty fine for |
| such, they must be subject to an employment | | | | a new company director to be burdened with. |
| contract in accordance with the Employment | | | | Creating your own director service contracts can |
| Rights Act 1996 and the Companies Act 2006. | | | | be a taxing undertaking without a strong working |
| Failure to comply with these regulations may lead | | | | knowledge of the law. The Companies Act 2006 |
| to a fine of up to £1,000! Directors of the | | | | and previous legislation lays down specific duties |
| company will also be held to be guilty of a criminal | | | | and responsibilities of company directors in order |
| offence. This much is made clear by the following | | | | to ensure that they do not abuse their power and |
| sections of the Companies Act 2006: | | | | position of responsibility. The director service |
| S.227: | | | | contract therefore needs to contain elements of |
| "Directors' service contracts | | | | these duties and the general responsibilities of the |
| (1) For the purposes of this Part a director's | | | | directors in running the company. |
| "service contract", in relation to a company, | | | | |