Company directors manage the company’s affairs by reference to the company’s articles of association (‘articles’). Under the Companies Act 2006, it is a requirement that private companies (such as private limited companies) have at least one director whilst public companies must have at least two directors. This applies irrespective of the size of the company and applies equally to all small businesses and startups that incorporate. One director within the company must be a natural person- that is an individual and not another company.
How are directors appointed?
The first directors are automatically appointed by filling out Form IN01. Once a company has been incorporated, directors can continue to be appointed with no limit on the number of directors a company can have. To begin this process, the current board of directors should outline the advantages of a new appointment for the company in order to recruit following directors. Once a suitable person has been identified, the board should create a service agreement that includes details related to the appointment of that director and their obligations. At a board meeting, the existing directors should make sure they are happy with these terms. Under s 228 of the Companies Act 2006, this service contract must be available for inspection at the registered office address.
Besides a service agreement, the process of appointing directors is determined by the company's articles of association. For example, a new appointment may require approval by a majority vote of shareholders or approval by the board and approval at the next general meeting. The company must also obtain formal consent to act from newly appointed directors and secretaries and make sure they have all relevant information about the director, such as a home address and their date of birth.
How to remove company directors?
The same way that the articles of association outline the procedures for appointing directors, they do so for removing them. Typically, the articles will specify that a director may be fired with the approval of the board or by a majority of the company's shareholders.
What qualifications are required for a company director?
Anyone is capable of being a director of a company provided that they are over the age of 16 and are not bankrupt or disqualified by a court from holding a directorship. The Companies Act does not provide a procedure for the appointment of directors. Instead, the company’s articles of association will dictate how directors are appointed, which is typically by the resolution of the members.
What does a company director do?
As a director, the individual or legal entity takes on duties to the company and is legally responsible for the company. The director’s primary duty is to act within the powers contained in the articles of association - the company’s constitution. The company’s articles will outline the directors’ duties and powers and it is important directors act with the company’s interests and within the powers ascribed to them as if they exceed their powers the related decisions may be reversed and the directors might have to compensate the company for any resulting financial losses.
Directors must act to promote the success of their company and, depending on the size of the organisation, they might be responsible for reporting how they have done so in an annual report. They should act in good faith for the benefit of the company and correspondingly for the benefit of its members as a whole. This duty extends to also considering the consequences of their actions on employees, third parties, the environment, the company’s reputation and its longer-term interests.
Directors must also exercise independent judgement and they are expected to exercise reasonable care, skill and diligence in their role, acting like a reasonably diligent person with the general attributes that could reasonably be expected from another carrying out the director’s functions. This involves them avoiding conflicts of interest and obtaining personal benefits (whether directly or indirectly) from the decisions they take.
Keeping a record of decision-making processes is crucial and the minutes of board meetings serve this purpose, providing evidence of the actions the board of directors have taken and the reasoning behind them.
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Private companies are not required by statute to have a company secretary unless the articles require one. In contrast, public companies are required to have at least one company secretary.
The qualifications of the secretary depend primarily on the type of company that is incorporated. In the case of private companies, there are no requirements for the secretary to have any formal qualifications. However, a public company must have at least one secretary who:
- has held the office of secretary in a public company for at least 3 of the 5 years before their appointment;
- is a person, from their experience of membership, who appears to be capable of discharging the functions of secretary;
- is a UK barrister, advocate or solicitor, and;
- is a member of one of the qualifying professional bodies provided, such as the Institute of Chartered Accountants in England and Wales.
Duties of a company secretary
A company secretary’s primary responsibility is to ensure the company’s administration is adequate. They will handle the company records, legal documents and management of administration and communication. They will also need to ensure compliance with corporate governance, financial regulations and the law.
Companies might also have senior executives known as ‘Chiefs’ of certain divisions: they are executive-level managers within the company who work together to ensure the company’s day-to-day development. Below we discuss the most common senior executives that you might find within a company.
Chief Executive Officer (CEO)
The chief executive officer is ultimately responsible for all aspects of the business, including its finances and overall direction. The CEO oversees all management functions and makes strategic decisions regarding long-term objectives, such as expansion plans or product development.
Chief Financial Officer (CFO)
A CFO will work closely with the CEO to source and evaluate new business opportunities in consideration of the potential financial risks and benefits that might result from certain ventures.
Chief Technology Officer (CTO)
A CTO leads the company’s technological needs and developments. If the company is creating technology, the chief technology officer will be responsible for the operations of the technology team and the research and development required for the product.
Chief Operating Officer (COO)
A COO can be considered a type of human resource executive and ensures that the company’s daily operations are running effectively and smoothly. They are responsible for ensuring that daily operations are effective through effective processes and procedures.
Chief Marketing Officer (CMO)
A CMO manages the strategies for business growth and development. The role will cover areas such as marketing, PR, customer experience and messaging in order to encourage a company’s expansion.
Chief Compliance officer (CCO)
The chief compliance officer is responsible for risk management, creating and implementing the company's ethical and legal standards, as well as advising the board of directors on regulatory and compliance issues. This person ensures that the organisation complies with laws, regulations, and other standards of conduct.
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The opinions on this page are for general information purposes only and do not constitute legal advice on which you should rely.