When you incorporate a company, you must appoint at least one company director. Directors’ details are inserted into Form IN01 (application to register a company) which must be submitted to Companies House. The details required include each directors’ names, country of residence, nationality, date of birth and business occupation. An address must also be provided for service of any necessary documents.
The law relating to company directors is set out in the Companies Act 2006.
How many directors can a company have?
When a private limited company is incorporated it must have at least one director. When a public limited company is incorporated it must have at least two directors.
In addition, whilst companies are permitted to have corporate directors, every company must have at least one director who is a natural person. Company directors must be over the age of 16 and there is no upper age limit. You cannot be appointed a company director if you are bankrupt, or are the subject of a ban disqualifying you from being a director.
Who are Company Directors?
There are two different types of company directors: executive directors, and non-executive directors. However, this distinction is not made in law – company law defines a director as anyone occupying the position of a director.
The board of executive directors are the directors who take care of the business of the company on a day to day basis. Members of the board of directors may include the executive director of the company, the finance director, the marketing director, and/or a director in charge of another area of company business.
Non-executive directors tend to meet once a month at most and are not responsible for the executive responsibilities of the company. Their main role is to ensure the overall success of the business, ensure the company is run by the executive directors to an appropriate standard, and to look after the ‘corporate governance’ of the company. Not every company has a board of non-executive directors – they tend to be the preserve of the larger private companies and public companies.
In some cases, individuals can become ‘de-facto’ directors. This is important in law, because the Company Act says anyone is a director for the purposes of the law if they are acting as a director (whatever label they are given). This means if the person is recognised as a director by their functions and authority, and the power they exercise in the company, they will be considered a director (whether or not formally appointed as a director).
An individual can also be ‘shadow director’. This is a person with whose directions or instructions the directors of the company are accustomed to act.
What are the duties of the directors?
There are a number of legal duties every director must comply with, including:
- To act in accordance with the company’s constitution (ie. Memorandum and Articles of the company), and to use their powers only for the purpose for which they were given
- To promote the success of the company for the benefit of the shareholders
- To exercise independent judgement
- To exercise reasonable care, skill and diligence
- To avoid conflicts of interest
- Not to accept benefits from third parties, and
- To declare to the company’s other directors any interest a director has had in a proposed transaction or arrangement with the company
Success of the Company
The duty to promote the success of a business can be a difficult duty to define. In deciding whether a director is promoting the success of a company, the directors must have regard to a number of matters, including the:
- likely long-term consequences of their decisions
- interests of the company’s employees
- need to foster the company’s business relationships with suppliers, consumers and others
- impact of the company’s operations on the community and environment
- desirability of maintaining a reputation for high standards of business conduct, and
- need to act fairly as between the members of the company
Directors must also be alert to potential conflicts of interest. They are legally required to avoid situations in which they have (or could have) a direct or indirect interest which conflicts with the interests of the company – or could do so.
The directors must ensure they consider all of these issues when making any company decision.
Exercise of Reasonable Care and Skill
Each director must exercise the care and skill of a reasonably diligent person which may be reasonably expected of a person carrying out the same job.
This is a broad definition but, in practice, means each director must use the same care and skill as any other reasonable person would have with the same role and job to do as that director.