Is it OK to become a Trustee or Director?

Obviously it is fine for you to become a director of a company you own. Becoming a director does come with responsibilities but as long as you operate within the law and meet your obligations as a director everything should run quite smoothly.

Do note however that the responsibility for a company trading within the law rests with the Directors not the Shareholders and if the company does not operate within the law then many of the protections offered by a limited liability company disappear. If you are asked to become a Director of a friends company tread with extreme caution, especially if your good friend is running the business and isn’t a Director – you will be taking on the legal liability for your good friend’s deeds and the end result may not always be a happy one.

People are often flattered if they are asked to become a Trustee of a trust or want to help a family member or friend by becoming a Trustee of a family trust. Again, tread with caution because there are significant personal liabilities you can be exposed to. If something goes wrong a Trustee can (and often is) held to account on behalf of the trust.

Several years ago a client of ours did a good deed by becoming a Trustee of a good friend’s family trust. The trust owned some property and seemed quite straight forward until the property was sold. It turned out the trust was developing property and IRD deemed there was tax owing by the Trust. The ‘friends’ were both made bankrupt and had no money to pay the tax so the tax man knocked on the door of the other Trustee (our client) and demanded he pay up. The good deed our client carried out by agreeing to be a Trustee ended up personally costing him tens of thousands of dollars in GST, Income Tax and penalties.

Many people are Trustees and Directors but the job is often best left to professionals rather than good friends. If you do become a Trustee or Director make sure you take on this legal responsibility with your eyes wide open and know what the worst case scenario may be.

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