Number of Directors
When you first incorporate a company you must appoint the directors of the company. Their details are inserted in the Form IN01 which must be submitted to Companies House. The Form IN01 includes detail such as the directors’ names, country of residence, nationality, date of birth and business occupation. An address must be provided to the Companies Registry for service of any necessary documents.
- 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.
Every company must have at least one director who is a ‘natural person’. This means that at least of one of the company’s directors must be an individual rather than a corporation appointed to act as a director. Generally, all company directors must be over the age of 16.
Who are Company Directors?
There are two different types of company directors these are:-
- executive directors; and
- non-executive directors.
The board of executive directors is the type most people are familiar with. These are the people who take care of the business of the company on a day to day basis. Members of the board of directors could include the executive director of the company or a finance director or a marketing director or a director in charge of any other area of the business of the company.
Non-executive directors do not work for the company each day and may only meet once a month or less. Their main role is to ensure that the company is run by the executive directors to an appropriate standard, to look after the ‘corporate governance’ of the company.
Not every company has a board of non-executive directors, it is usually the larger private companies and public companies which will appoint a non-executive board to work alongside the board of executive directors.
Other types of Directors
Individuals can become ‘de-facto’ directors as the term ‘director’ includes any person acting as a director whatever name they are called. Therefore, if the person is recognised as a director by his functions and authority and the power he exercises in the company then he will be considered a director whether formally appoint as such or not.
Finally, individuals can also be ‘shadow directors’. This is a person with whose directions or instructions the directors of the company are accustomed to act.
Duties of Directors
There are a number of duties every director must comply with:-
To act in accordance with the company’s constitution (i.e. Memorandum and Articles of the company), and to use powers only for the purpose they were given;
To promote the success of the company for the benefit of the shareholders;
To exercise independent judgment;
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 had in a proposed transaction or arrangement with the company.
Success of the Company
This is one of the more difficult duties to define. In deciding whether a director is promoting the success of a company, the directors must have regard ‘amongst other matters’ to the:-
- likely long term consequences of their decisions;
- interests of the companies 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.
The directors therefore have to ensure that 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 very broad definition but in practice means that 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.
When you cease to be Director
Even when you are no longer the director of a company you have to comply with the requirements to avoid conflicts on interest and not to accept benefits from third parties in relation to things done before you ceased to be a director of the company.