Contract - must be a director???

[BamBam]

Hi all,

I've got a new position, through an S3 agency (unfortunately!), and one of the clauses in the contract is as follows:

the Consultant is the Service Provider’s director and shareholder and exercises sole financial and management control over the company’s structure and business operations.

This was also in a previous contract I had with another S3 company (no surprise, really - I bet they use the same legal team!).

My issue with this is that, even though I'm a director, I'm not the SOLE director - my wife (who is also a developer) is the other director and company secretary. Financial decisions are ultimately hers, whereas contractual decisions are normally mine, but they're discussed between us and must be agreed by both of us.

Anyway, after badgering them loads (as I obviously can't sign with the original clause!), they've added ammendments to Schedule 2, and the relevant wording is:

the Consultant specified in Schedule 1 is the Service Provider’s director and shareholder and exercises financial and management control over the company’s structure and business operations together with *TheWife* who is the second Director of the Service Provider. For the avoidance of doubt the provisions of this clause will not affect the Service Provider’s right to substitute the Consultant specified in Schedule 1

Is this OK? Personally, I'm not that happy about it, because we quite clearly have separately defined roles, which you can't see with such a clause. And why do they insist on having clauses like this in the contract in the first plae? My example to them was that, if I employed a developer and wanted to contract him out through the same agency, how could we sign such a contract?

All the reasoning that I've been given for this clause is to do with the MSCs. But I don't get it. What the Government mean by MSCs are umbrella companies and the like, aren't they? How can a service provider even remotely be considered as an MSC?

It seems that by having an agent in the middle of things just makes things much more complicated in every way! :S

[NotAllThere]

Cross out the offending clause, initial and sign. Send the contract back telling them what you've done, and that they should stop being so silly.

Keep an audit trail.

They have the clause because they, or their legal team, are incredibly stupid.

[BolshieBastard]

Cross out the offending clause, initial and sign. Send the contract back telling them what you've done, and that they should stop being so silly.

Keep an audit trail.

They have the clause because they, or their legal team, are incredibly stupid.

WHS.

Its a ludicrous clause. If they dont want to lose commission on you, they'l bellyache a little but agree to it.

[tim123]

Is this OK? Personally, I'm not that happy about it, because we quite clearly have separately defined roles,

But you don't. You are joint shareholders and directors in the company.

You are therefore jointly responsible for the decisions taken. You can't just decide between yourselves that "the wife is responsible for financial decisions".

Such an agreement will carry no weight at all if anyone were ever to need to take action against you for any financial complications.

tim

[Inside Agent]

When the Finance Act came in agencies received advice from a number of well respected tax advisors.

Generally the accepted and safe definition of a Personal Service Company was one that is generally a single consultant who excercises financial independence over the running of their company and financial affairs.

[BamBam]

But you don't. You are joint shareholders and directors in the company.

You are therefore jointly responsible for the decisions taken. You can't just decide between yourselves that "the wife is responsible for financial decisions".

How does *that* work then, in a "regular" company? You're saying that someone doing the accounts can't make decisions about the accounts, because they're not a director? Or indeed that any of the directors can make financial decisions, even though that's not their remit (eg they're the Technical Director)? What you say makes no sense.

Such an agreement will carry no weight at all if anyone were ever to need to take action against you for any financial complications.

How too does *that* work, then? If someone wanted to take action against us, they're *not* taking against *us*, but the company itself - hence the name "Limited"!!

Seriously, what you're saying doesn't explain any of the points I wanted to discuss, ie why they need the consultant to be a director with "control" over the company. We're not a "one-man-band" masquerading as a Limited company - we're actually a proper company in the sense that there is more than 1 director and we don't solely survive off contracting. For example, we pitch for work directly to companies (ie no agent in the middle) and already have a couple of on-going projects like this, and also one of the company's revenue streams is actually through our own e-commerce site.

Bottom line is 1 shoe doesn't fit all, so I'm amazed at how much hassle it is every time to get a proper contract negotiated/signed.

[BamBam]

WHS.

Its a ludicrous clause. If they dont want to lose commission on you, they'l bellyache a little but agree to it.

Guys, I wish this was all resolved before I'd gone onsite, but now I'm onsite, I need to get this resolved ASAP.

I can tell the agent that I'm not going in again until the contract stuff is resolved, but this won't look good to the client. The agency have supplied consultants to this client before, so who are they going to perceive as the problem maker - the guy who's just arrived, or the agent that's been dealing with them before?

[NotAllThere]

When the Finance Act came in agencies received advice from a number of well respected tax advisors.

Generally the accepted and safe definition of a Personal Service Company was one that is generally a single consultant who excercises financial independence over the running of their company and financial affairs.

received bad advice
well respected tax advisors who couldn't work out, or were ignorant of the fact that there are equally safe small ltdco structures, who are, in no way, and never could be MSCs and therefore caught by the legislation.

There's safe, and then there's bl**dy stupid. It really isn't hard to understand that a couple running a business aren't affected (except by ignorant agents) by the MSC legislation.

[tim123]

How does *that* work then, in a "regular" company? You're saying that someone doing the accounts can't make decisions about the accounts, because they're not a director? Or indeed that any of the directors can make financial decisions, even though that's not their remit (eg they're the Technical Director)? What you say makes no sense.

In a "Normal" company people with the job title "Director" aren't always controlling directors.

We are talking here about controlling directors. Legally, they are jointly and severally liable for the financial decions that the company takes, even if they weren't in the room when the decison was made.

tim

[tim123]

Seriously, what you're saying doesn't explain any of the points I wanted to discuss, ie why they need the consultant to be a director with "control" over the company.

For the reason that "Inside Agent" gave in the previous post.

They want to be sure that your company is not a "Managed Company" (or whatever it is called) of the type that was banned a couple of years ago.

If they don't take this step (of making sure) they can be held personally liable for your company's tax bill if you don't pay it.

It could be argued that they don't need to go as far as they are in doing this check, but nevertheless, this is why they are doing it.

tim