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| 1. A private company must have at least one director.
2. Every company must have a secretary and a sole director may not also be the secretary (s283 CA 85).
3. A company may be a director of another company.
4. There is no maximum limit on the number of directors.
5. There is no age limit on directors of private companies.
6. The company’s articles of association will determine the precise method of appointment.
7. Generally, shareholders can also appoint new directors by a majority vote.
8. Directors do not have to be employees of the company.
9. Directors are permitted to own shares in the company but are not allowed to deal in those shares in certain circumstances or at certain times of the year.
10. There is no general obligation on directors to disclose all information requested by shareholders.
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 Company Director Appointment Checklist
The following checklist seeks to highlight the areas that a new director should have confirmed:
What are the terms of appointment, service agreement, duties, reporting structure, etc.? How is the appointment evidenced? - Check authority. How are payments of fees, expenses etc., made?
Obtain a copy of latest accounts and management accounts (and any supplementary information) to enable appointee to consider financial state of company. Obtain a copy of the Articles of Association to determine the powers (and restriction of powers) of directors and officers, and a copy of the minutes of the board for the previous year and company for previous five years to check: a) compliance and b) alterations to Articles.
NB: This check will also provide valuable background information on the tactics and strategy adopted by the board, disclose any authorities granted by the board on an individual or committee basis, which may require further investigation, etc.
Check file regarding filing of documentation with Registrar of Companies. Check provision of statutorily required information. Check statutory books for up-to-date entries. Obtain copy of directors' and officers' liability insurance policy and of renewal note. Check if the Articles grant an indemnity against personal costs and liabilities incurred as a result of acting as an officer of the company. Obtain a copy of all loan notes, guarantees, charges, etc.
Check any requirement for qualification shareholding, and, if so, acquire such shares (avoiding any price-sensitive periods). NB: if the Articles require a qualification shareholding which the director fails to take up, the appointment is invalid, but the appointee can be held liable for acts undertaken until the share qualification is acquired.
Prepare a list of companies and/or matters in which the appointee has an interest, and with which the company may be trading or negotiating. These potential conflicts of interest must be disclosed within five days of appointment (and subsequently when they arise). Whether they are allowed to subsist, and/or the director can vote on any such matter (or even form part of the quorum during the discussion), and/or take any profit made from such interests must be checked with the Articles.
Check other board members' interests are noted and what they are. Establish whether any shadow director(s) exist(s), and, if so attempt to ensure that their details are recorded in the various registers, etc. Request a copy of any code of ethics or equivalent applicable to directors and/or senior members of the management of the company.
Request a schedule of board meetings and arrangements for obtaining information for discussion/decision at such meetings. The Articles should be consulted to check what is required to make a correct appointment. In most cases a director's appointment can be made only at a properly convened and constituted board meeting.
WARNING: It can be embarrassing (to say the least) for a company to attempt to appoint to its board a person who has been disqualified from so acting. It may be prudent for the company secretary discreetly to check the Register of Disqualified Persons (held and updated by the Registrar of Companies).
Not all directors involved in failed companies are disqualified and to provide such "track record" information, the business information/credit agency Experian (www.experian.com/bi) maintains a database showing whether directors have previously been involved in such companies.
- Status of Directors
Nowhere in legislation is the term director defined. Various descriptions of directors are used - often without full appreciation of the implications of such names.
Executive - a member of the board authorised to carry out certain day-to-day functions including entering into contracts and managing staff and assets. Such a person is almost certainly an employee as well as an officer and the paperwork concerning their appointment should reflect this.
Non-Executive - most company boards consist predominantly of fulltime executives. Since it can be difficult for such executives to retain the overall and objective view of the company that their duties as directors require, it has become increasingly common to appoint non-executive directors to boards. Drawn from senior management (and often retired former directors) from other industries, these directors have no executive responsibilities, but provide executive directors with advice and input based on their experience. Since they do not depend for their living on the salary drawn from so acting, they can be far more objective regarding the progress (or lack of progress) of the company, and, in essence, require answers to questions the executive directors may least want asked. It is also easier for such a director to question the legality or appropriateness of certain actions. For example, in the Guinness affair the "wrongdoing" of certain of the executive directors, was eventually challenged by the non-executive directors. Should the actions complained of continue, non-executive directors will find it easier to resign in protest, with possible attendant publicity, not least since they will not normally be dependent on their income from the company. Non-executive directors rank equally with (and have exactly the same responsibilities as) other directors in all respects. Both the Institute of Directors and the Stock Exchange are very much in favour of the extension of the non-executive director concept, whilst draft legislation from the European Union calls for there to be a majority of non-executive directors on the boards of all listed PLCs.
Chairman - a member of the board, executive or non-executive, elected to chair the board by the board members. Although often described as such, the chairman is not chairman of the company but simple of the board and, depending on the wording of the Articles Of Association, may be chairman of the board only "for the time being".
Managing Director (chief executive) - in many organisations the functions of chairman and managing director are vested in one person. There has been criticism of this practice, critics inferring that the concentration of power in one person's hands is detrimental to the overall control of the company. However, research seems to suggest that the retention of the twin powers in one person tends to improve the performance of companies, compared to those where the functions are split. Where there is a separate managing director function, it is more usual for the chairman to be non-executive and to look outwards and interface with external parties, leaving the managing director to ensure other board members and management who report to him/her carry out the requirements of the board and their own responsibilities - that is essentially an internal role. However, it is difficult to be precise about this since companies operate in different ways - e.g. letting the managing director assume a greater external role, whilst the Chairman adopts a lower profile. To a certain extent this is inevitable since the personalities and talents of the persons themselves may well affect the range of duties they undertake. Legally the managing director may be in a different position from every other director and his powers, responsibilities and provision of his re-election need to be checked in the Articles of Association. Under some Articles, a proportion (often a third) of the directors must retire at each Annual General Meeting of the company shareholders and seek re-election by those shareholders at that meeting. A managing director, however, is often excluded from this requirement.
Alternate Directors - act as a proxy for the appointee and have the right to receive all data and items sent to other directors. A director is legally entitled to appoint an alternate but only if it is allowed under his company's Articles and the appointment is usually made subject to the agreement of the rest of the board.
Associate or Local Directors - if allowed by the Articles, a company may be able to grant to an employee the rank of "director" to indicate that the person carries a high level of authority. Such people are not usually company directors and they should not use the title in such a way as to suggest that they are.
Courtesy titles such as "Director of ..." may be used to grant a level of authority to a person who is not a board member and may not even be an employee.
Nominee Directors - are sometimes appointed by (for example) a major shareholder who wishes to exercise some control over the board and company. Nominee directors owe obligations to two separate bodies and may need to take care to avoid conflicts of interests. A nominee director may have enhanced voting rights (e.g. a vote exercised by a nominee may rank greater than the combined votes of all other members). In such a case the company may be regarded as a subsidiary of the shareholder appointing the nominee director, with all the implications that such a relationship entails.
Sole Director - since the 1989 Companies Act came into effect companies have been allowed to have just one shareholder. LTD companies have always been allowed to have just one director (although a sole director cannot also be company secretary). It is perfectly legal for the sole shareholder to appoint himself sole director. However, there is an inherent danger in that if the director dies or unable to act in some other way, there is no shareholder to replace the director and the company will be unable to continue to trade until the ownership of the share(s) is determined - something that could take several weeks at least.
Silent/Sleeping Directors - directors have a duty of care from which they cannot be absolved. If a person accepts the appointment of director he accepts full legal liability for the actions of the company. If he fails to attend board meetings he still has such liability even though he may have no knowledge of what is going on. Basically it is impossible for a director to delegate his responsibility (and liability) for operating the company. Ignorance of what is going on (as of the law) is no excuse.
- Registering the Appointment
Register of Directors And Secretaries. The first directors and secretary are required to complete Form 10 and send it to the Registrar. Thereafter each director/secretary is required to complete Form 288(a) and arrange for it to be filed with the Registrar within fourteen days of their appointment. As well as signing to indicate their consent to act (to ensure that the director knows of the appointment) full personal details as required (including any former name) must be given. Failure to provide such personal data is an offence subject to an initial plus a daily fine.
These details include private addresses, which are needed in case the Registrar requires to serve official notice (e.g. for failure to file accounts, etc.). Despite this there is a preference amongst some directors to try not to disclose their private address. This breaches company law. There are proposals to allow directors who are subject to serious personal threat to file a "service address" rather than their personal address. The number of directors able to take advantage of this relaxation is likely to be extremely small. All changes (e.g. names, nationality, address, resignation) must also be filed within fourteen days (on Form 288(c)).The Register of Directors must show all the details, and changes, required to be filed with the Registrar.
Register of Other Directorships. Currently the names of all companies of which the director has been a director in the previous five years must also be notified to the Registrar and shown in a register. Since this may be subject to considerable change (not least by passage of time "losing" former directorships) the requirement to update such changes should not be overlooked. However, the Registrar has indicated that there is no necessity to file Form 288(c) on each occasion of a change to this data. The former requirement to state all such directorships on the Annual Return has been dropped although until there is a change in company law, the company's own register must continue to be kept.
Register of Director's Interests. Details of each director's interests in the shares of the company and any subsidiary, fellow subsidiary or holding company must be notified to the company within five days of the person's appointment, and all changes thereafter must be separately notified within five days of their occurrence. This obligation not only relates to shares held personally by the director, but also to shares held by the director's spouse and any minor children (see Companies Act 1985 Section 325). In addition, any share options (and changes including their exercise) issued by the company to a director (or his spouse or infant children) must also be recorded. The only exceptions to this requirement are: if the director holds the shares as a trustee (i.e. there is no personal interest in them); if the director is also a director of the company's holding company which already holds all such details; or if the holding is in a company incorporated overseas.
- 'Register' of Interests in Contracts
Under Section 317 of Companies Act 1985, directors are obliged to notify their company of any interest they may have in contracts (or proposed contracts) being made by the company with a third party.
Interests are defined as either being: GENERAL - that is that the director has an interest in all matters concerning a named third party. Such a statement could be made upon the director's appointment; or SPECIFIC - that a director has an interest in a particular contract. Such a declaration must be made at the first board meeting which considers the proposed contract or on the director becoming aware of the interest and/or of the contract.
There is no requirement for the company to keep a register of such interests, but directors themselves may feel it prudent that such a register should be kept as evidence that they have informed the company, not least since failure to notify an interest is an offence punishable by initial and daily fines.
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£ 125.00
Nominee Director Service for Public Records for one year:
It is a perfectly legal device which preserves the privacy of an individual. It is designed to help a person who would rather not disclose their interest or association with a given corporate body.
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