Agreeing to be a director of someone else's company

Q: How might this look in practice?

Illustration only. Priya agrees to be a director of her brother's café company so that it has a second director. She never sees the bank statements. Over two years the company stops paying PAYE and builds up arrears while her brother keeps trading. The company enters insolvent liquidation. The liquidator reports on both directors' conduct. Priya argues she took no part, but the test looks at what a reasonably diligent director should have known, and her absence is itself the problem. She faces the same disqualification and contribution risks as her brother. Had she insisted on monthly figures, she would have seen the arrears and could have pushed for advice or resigned.

If you agree to be a director of a friend’s or relative’s company, you take on exactly the same legal duties and personal risks as a director who runs the business every day. The Insolvency Service says inactive directors are accountable too and that doing nothing or lack of knowledge is not an excuse, so a directorship held as a favour can still lead to disqualification, personal contributions to creditors or criminal liability.

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What are you agreeing to when you become a director?

There is no such thing in company law as an honorary or passive director. Once appointed you are a director for every purpose, and section 250 of the Companies Act 2006 says a director includes anyone occupying the position, whatever they are called. You will owe the general duties in sections 171 to 177: to act within the company’s powers, to promote its success, to exercise independent judgment, to use reasonable care, skill and diligence, to avoid conflicts of interest, not to accept benefits from third parties and to declare interests in transactions. Our guide to directors’ duties covers each one.

You will also need to verify your identity with Companies House. Section 167M, in force since 18 November 2025, makes it an offence for an individual to act as a director unless their identity is verified, and the company commits an offence if it lets an unverified director act. See Companies House identity verification. Your name, a service address, nationality and month and year of birth will appear on the public register, and stay there after you leave.

Can you be a director in name only?

Not safely. The Insolvency Service’s director information hub states that all directors share responsibility for the company even if they are not involved in day to day running, and that you cannot avoid accountability by not taking part in decisions, having a limited or advisory role or claiming lack of awareness. It says directors must take an active interest in the company’s affairs, monitor performance and risks and intervene when necessary, and that a lack of financial knowledge is no defence.

The law sets a minimum standard. Under section 174, a director must show the care, skill and diligence of a reasonably diligent person with the general knowledge, skill and experience reasonably expected of someone carrying out that director’s functions, plus any greater knowledge the director actually has. Lower personal ability does not lower the bar. The wrongful trading test in section 214 of the Insolvency Act 1986 uses the same approach and, under section 214(5), counts functions entrusted to a director even if the director does not carry them out. Agreeing to be a director and then leaving everything to your friend is therefore measured against what you should have done, not what you did.

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What personal liabilities could follow?

Limited liability protects shareholders from the company’s debts. It does not protect directors from liability for their own conduct. The main routes are:

Wrongful trading. If the company goes into insolvent liquidation or administration and a director knew or ought to have concluded there was no reasonable prospect of avoiding it, the court can order that director to contribute to the company’s assets under section 214, unless every step was taken to minimise creditors’ losses. See wrongful trading.
Disqualification. Section 6 of the Company Directors Disqualification Act 1986 requires the court to disqualify a director of an insolvent company, or of a company dissolved without becoming insolvent, whose conduct makes them unfit. The minimum period is 2 years and the maximum 15 years. See director disqualification.
Unpaid National Insurance. Under section 121C of the Social Security Administration Act 1992, HMRC can issue a personal liability notice to an officer where the company’s failure to pay contributions appears attributable to that officer’s fraud or neglect.
Claims by a liquidator for breaches of duty, such as allowing company money to be taken out improperly while you stood by.
Personal guarantees. Lenders and landlords often ask directors to guarantee company debts. That liability arises from what you sign, not from the directorship itself, so never sign one as a formality.

What if the person asking you cannot be a director themselves?

This is the most dangerous version of the favour. The Insolvency Service warns that acting as a director on behalf of someone else always carries risk, and that you could be prosecuted if you agree to act for someone who is not allowed to be a director.

The law backs this up. Section 11 of the 1986 Act makes it an offence for an undischarged bankrupt, or a person subject to a bankruptcy restrictions order, to act as a director or be concerned in the management of a company without the court’s leave. Under section 15, a person involved in management who acts or is willing to act on instructions given by someone they know is disqualified or an undischarged bankrupt becomes personally responsible, jointly and severally with the company, for the company’s debts incurred during that time. Acting in breach of a disqualification order carries up to 2 years’ imprisonment on indictment under section 13. The person giving the instructions may also be a shadow director, defined in section 251 of the Companies Act as a person in accordance with whose directions or instructions the directors are accustomed to act. See shadow and de facto directors.

What should you check before agreeing?

The Insolvency Service suggests understanding why you are being asked, checking whether the individual is disqualified or restricted and assessing the risks. In practice that means:

searching the disqualified directors register and the company’s filing history on Companies House;
reading the latest accounts and asking for current management figures, including any HMRC arrears;
asking who else is on the board and who actually controls the bank account;
agreeing in writing that you will receive board papers, bank statements and notice of every decision;
asking whether the company holds directors’ and officers’ insurance.

If the honest answer to why you are needed is that the friend cannot appear on the register, the safest course is to decline.

What should you do once appointed?

Behave as a director. The Insolvency Service lists tracking cash flow, reviewing accounts and spotting early signs of financial difficulty as things every director must do. GOV.UK guidance adds that you can hire others, such as an accountant, to manage tasks day to day, but you remain legally responsible for the company’s records, accounts and performance. Ask questions at board meetings, get your objections minuted and take advice early if the company may be insolvent. The Insolvency Service also says that once a company is insolvent, directors must not favour themselves, connected people or personally guaranteed debts over other creditors.

Does resigning end the risk?

Only for the future. The Insolvency Service states that you remain responsible for decisions and actions taken while you were a director, even after you resign or sell the company, and it can investigate directors who have resigned. Resigning promptly when you cannot get information is still sensible, because it stops new exposure building up. See resigning as a director.

How might this look in practice?

Illustration only. Priya agrees to be a director of her brother’s café company so that it has a second director. She never sees the bank statements. Over two years the company stops paying PAYE and builds up arrears while her brother keeps trading. The company enters insolvent liquidation. The liquidator reports on both directors’ conduct. Priya argues she took no part, but the test looks at what a reasonably diligent director should have known, and her absence is itself the problem. She faces the same disqualification and contribution risks as her brother. Had she insisted on monthly figures, she would have seen the arrears and could have pushed for advice or resigned.

What mistakes do people make?

Believing a directorship taken as a favour carries less responsibility.
Agreeing without checking whether the person asking is disqualified or bankrupt.
Signing documents, including personal guarantees, without reading them.
Having no access to bank statements or accounts.
Resigning only after problems appear and assuming that ends past liability.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.

Agreeing to be a director of someone else’s company