directors

Directors are responsible for the administration of a company, caring for its assets, ensuring that the company complies with the obligations imposed by the Companies Acts. In doing so, directors attend board meetings to allow the company to function and vote at those meetings. Directors collectively have the responsibility to ensure that the accounts, annual returns, appointed directors and secretaries and changes to the registered office are maintained with Companies House.

Directors under the Companies Act

According to section 250 of the Companies Act 2006, a director includes “any person occupying the position of director, by what name called”. Directors may be formally appointed as is the case with Companies House directors and appear on the Register of Companies. The different types of directors of a company include executives, non-executives, alternates, shadow directors, de facto directors, associate, managing directors and nominee.

Public companies must have two directors, and private companies may have one provided the articles of association permit it. Restrictions may be placed in the articles of association to put in place qualification criterion for directors of a company, which may relate to the nationality, share holdings or country of residence.

Appointment

The first directors of a company are appointed in by the subscribers to the Memorandum of Association. Thereafter, appointment depends upon the terms of the articles of association which usually provide for appointments by a majority of votes in a general meeting or by the directors themselves. After the appointment of the new director after the directors’ or members’ meeting, Companies House must be notified within 14 days of the appointment, the appointment be recorded in the Register of Directors and the Register of Director’s Residential Address, and the director must disclose any interest in the contracts which the company has.

Simply because a person is not formally appointed as a director, does not mean that the person cannot considered be director at law, and be taken to assume the responsibilities and duties imposed upon directors at law. For example if a person (say a majority shareholder of a company) exercises control over the board of directors, it is likely that the person would be considered a shadow director. Whether or not a person is a director at law may depend in part on how the person is held out to the public by the company, as is the case with de facto directors and shadow directors.

If a company is to have a chairman or managing director, they are elected by the board of directors. These posts must be provided for in the articles of association, and they are included by default in the Table A (Companies Act 1985) and Model Articles (Companies Act 2006).

Individuals may be disqualified from being a director of a company where they conduct themselves in a manner that is seen to be inappropriate for a person in charge of a company and its assets. Undischarged bankrupts and auditors of the company may also not be a director of a company.

Duties

Whether or not directors are formally appointed to the board, they owe statutory duties to the company and in accordance with the general law. These include duties to (1) act in good faith and not act contrary to the interests of the company, (2) not to use their powers for an improper purpose, (3) not place themselves in a position of conflict with the interests of the company, and (4) promote the success of the company. Departures from these duties are remediable by court orders such as injunctions and declarations, damages, retrieval of company property, dismissal and an account of profits.

Termination of Appointment

A director’s tenure as a director end when:

1. any of provisions of the Companies Act deems it to be the case;
2. the director is made bankrupt;
3. the director is physically or mentally incapable of acting as a director;
4. by reason of that person’s mental health, a court makes an order which prevents that person from personally exercising any powers or rights which that person would otherwise have;
5. he resigns.

Limitations to Appointments

The Companies Act allows any person over the age of 16 to be a director of a company. However certain classes of persons are not able be appointed, which include (1) those which have been disqualified from being directors under the Company Director’s Disqualification Act 1986, (2) undischarged bankrupts, (3) a director or former director of an insolvent company where the appointment is to be in company with a prohibited name within the meaning of the Insolvency Act 1986, and (4) auditors of the company.