[Question] Friend operating under my business

[Saskeaus99]

Hi, what is the dangers or implications for someone else/another company to operate under my company? My friend has a successful business which isn't registered. I have a newly registered business which I haven't used to trade yet. I'm the only shareholder and director of my company but I'll have no profits because it will all go to my friend. I suspect he have tax issues therefore he wants to use my company. Is this even legal?

[Dave A]

What is the upside for you in this deal? I see only risk (lots and lots of risk), but zero benefit.

Is this even legal?

I wouldn't think so based on what you presented.

[Citizen X]

I suspect he have tax issues therefore he wants to use my company. Is this even legal?

Tax issues? Definitely not

[HR Solutions]

Hi, what is the dangers or implications for someone else/another company to operate under my company? My friend has a successful business which isn't registered. I have a newly registered business which I haven't used to trade yet. I'm the only shareholder and director of my company but I'll have no profits because it will all go to my friend. I suspect he have tax issues therefore he wants to use my company. Is this even legal?

The implications are huge. Basically everything he does legal or illegal is happening with you name.

I would NEVER allow anyone to do this.

[BusFact]

I actually can't see anything strictly illegal with it as long as he has your consent to run your company as a manager for example. But if he runs the business using your company name then there are hoops to jump through. You will need to file tax returns, you will need to pay an accountant for annual account reviews and you will need to open a bank account. It will have to be very clear to all customers and suppliers that they are dealing with your company and not his old business.

You will take on a lot of risk and responsibility by letting him in. If anything goes wrong you personally will have to pay any arrear taxes and possibly staff and suppliers too. As a director you are expected to oversee the running of a company and will be blamed for anything going wrong - not your friend.

Its just not worth it.

Rather come to a business arrangement where you agree in writing as to who does what and who gets paid what, and make it worth your while. Become partners, don't do him a "favour". You cannot let him run the business without your supervision.

[Saskeaus99]

Thank you all for your responses! Well, there will be some benefit for me. A good percentage of profits will go my way. We had a discussion and it seems to me that I will be part of the company (Operating Director). I will forsee books are in order, staff gets paid, company policies being adhered to etc. All seems legit besides the point that his not on the company books as an employee, director or shareholder. Do u see risks if I make sure that the company adhere to business law?

[Dave A]

All seems legit besides the point that his not on the company books as an employee, director or shareholder. Do u see risks if I make sure that the company adhere to business law?

In that situation, the risks would seem to be in the court of your friend that you might not honour the agreement between you, or poorly execute the affairs of the business.

Despite any assurances received, I suggest you probably need to take care around the reasons why the interest of your friend in the business is not being disclosed. It's flirting in the realm of dishonesty, and I would not rely on anyone being honest about why they are being less than honest...

[Greig Whitton]

I'm the only shareholder and director of my company but I'll have no profits because it will all go to my friend.

Well, there will be some benefit for me. A good percentage of profits will go my way.

Which one is it?

Regardless of whether you benefit from this arrangement or not, the elephant in the room is this:

My friend has a successful business which isn't registered.

If your friend's business is so successful, why doesn't he just register it? The process is relatively quick, straightforward, and inexpensive. Why give up a share in profits and operational control by trading under someone else's business? There are only two possible explanations that I can think of:

(a) There is some strategic benefit (e.g. your friend has more demand than he can cope with and your business has spare capacity to service that demand).

(b) Your friend has been (and/or still is) doing something dodgy and wants to hide it in your business (or possibly even set you up as a fall guy if everything goes south).

Until your friend can decisively demonstrate the former, I would advise staying far away.

From the tone of your posts, it sounds like you suspect your friend of foul play but are tempted by a potentially lucrative opportunity. Don't let short term gains cloud your foresight. Keep your hands clean and play the long game.

[Justloadit]

A typical example will be over committing and under delivering.
Who is going to be responsible to the customer?
What about warranty?
Professional indemnity?
and many more......

Your name and company name is the one that will be used by the client. The client does not know your relationship, and in all cases will hold you personally responsible for any wrong doing or legal relief.

[Lorenc]

and you agreed??

[Houses4Rent]

From what see here I can see only red flags and would not allow this until I am 100% certain I know all the true reasosn as to why your friedn doe snot want to register his own business. Did you find that out?

[Phil Cooper]

In terms of King commission, you, as a Director, can be held liable IN YOUR PERSONAL CAPACITY, for certain actions carried out by the Company.

It is based on what you SHOULD have known, and not what you DID know.

If your friend does something unlawful / illegal - or just plain negligent, and an action is bought against the Company, YOU could be held liable PERSONALLY - and lose your assets.

Be VERY careful!

[Andromeda]

The King Commission is an interpretation of the Companies Act, nothing more.

The whole process documented here is pretty much how a private company evolves. I reckon Saskeaus99 is pretty much in charge of his affairs.

[HR Solutions]

The King Commission is an interpretation of the Companies Act, nothing more.

The whole process documented here is pretty much how a private company evolves. I reckon Saskeaus99 is pretty much in charge of his affairs.

What is that supposed to mean ? Phil is totally correct !

[Dave A]

The King Commission was an investigation into match fixing in cricket. (Edwin King)

The King Report is about Corporate Governance. (Mervyn King)

All said, add a dose of "best practice" and Andromeda is pretty much on the mark. The King Report is a powerful influencer in the realm of corporate governance, but it is not in itself statutory.