Red flags to look out for when asked to be a Director of a company

Red flags to look out for when asked to be a Director of a company

Directors’ duties can be onerous.

It is essential for would-be directors to conduct thorough due diligence by taking into account the legal, financial and business standing of the company in question. Although some of these questions may be uncomfortable to ask, they are important to pose before attaching your name and reputation to any professional institution. Think of this as a reverse job interview – you want to make sure that the business is truly worthy of your time, energy and endorsement before you agree to represent them in any capacity.

If you are invited to join the Board of Directors of a company, executive or otherwise, look out for these red flags:

1. When was the Company’s legal documentation last updated? Shareholder’s agreements, director’s contracts and Company constitution should be updated regularly.

2. Are the company’s information price-sensitive and what safeguards are taken to protect this information?

3. Are there related/ family/ friends on the Board?

4. Are major suppliers, clients related to/ family/ friends of members of the Board?

5. Is the Board regularly and competently advised by legal/ accounting professionals?

You should do your due diligence before agreeing to be on any Board of Directors. The above are just some considerations. The fact that you did not know/conduct appropriate due diligence before agreeing to join does not absolve you of your responsibilities.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: 

walter@silvesterlegal.com or info@silvesterlegal.com.

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