A Company Director is a person who is responsible for making key decisions, setting objectives and ensuring that a company adheres to its legal duties and obligations. Company Directors assume the role of managing a company’s affairs in accordance with the Companies Act 2006, the company’s articles of association and its shareholders’ agreement (if one has been drafted). In this guide we will explain all that you need to know about the role of a Company Director, including who can be a company director, the duties and responsibilities of the role and how to appoint or remove a director of a company.
Who is the Director of a Limited Company in the United Kingdom?
Under the Companies Act 2006, a Director of a Limited Company refers to any individual who occupies the position of director, regardless of the title they use. In itself, however, this definition is not particularly helpful in understanding the actual role of a director. Furthermore, the law sets no upper limit on how many directors a company may have. So what are the facts?
Company Directors are pivotal in steering a company’s business and safeguarding its future. The Director of a Limited Company is a person at the highest level of a company who is in charge of making decisions about how that company is run on a day-to-day basis. From the perspective of company law, a director is a person who is legally responsible for running a company, making sure that statutory filings are sent to Companies House on time and adhering to the duties of a director.
Directors hold considerable authority within a company and can enter into contracts, hire employees and make decisions on behalf of the business. It is essential to understand that directors act as agents of the company and can legally bind the company with their actions.
The law says that a private company must have at least one director, and a public company must have at least two. In cases where only one director exists in a company, that director must be a natural person, not another company or entity.
What are the types of Company Director?
Contrary to common understanding, there are 4 types of Company Directors recognised under the law:
| Type of Director | Description |
|---|---|
|
1. De jure director |
A person who has been explicitly appointed as a director. |
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2. Alternate director |
A person appointed by an existing director under a company’s articles of association to act temporarily in their place at board meetings when the existing director cannot attend. |
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3. De facto director |
A person who has assumed the role of director, although they have never been actually or validly appointed as such. |
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4. Shadow director |
A person upon whose directions or instructions the directors of a company are accustomed to act and is therefore considered to be a director “of sorts”. |
Who can be a Company Director in the UK?
According to the Companies Act 2006, any person who is aged 16 or older can be a Company Director and there is no upper age limit. There are no restrictions on nationality or residency when appointing a Director of a Limited Company in the UK and they do not need to live in the UK, although the company itself must have a UK-registered office address.
There are no requirements with regard to particular qualifications or experience in order to be a director. The Companies Act 2006 stipulates that the director should exercise reasonable care, skill and diligence.
A director is generally entitled to remuneration, particularly as an executive director, and will be treated as an employee under a director’s service contract with the company.
On the other hand, she-or-he may choose to act gratuitously (in other words, work for free), usually as a non-executive director. A non-executive director may not be an employee of the company, so their service contract is at the discretion of the company.
Who cannot be a Company Director in the UK?
Certain people, however, are barred from being a Company Director. A person cannot be a Company Director if they are an undischarged bankrupt or have been disqualified by a court order unless the court grants permission. Breaching these restrictions is a criminal offence and can result in severe consequences, including imprisonment.
A person may be disqualified from the role of Company Director due to ‘‘unfit conduct’’, which may include:
- Permitting a company to trade despite being unable to meet its debt obligations
- Failing to maintain accurate company financial records
- Neglecting to file accounts and returns with Companies House
- Avoiding the payment of company taxes owed
- Using company funds or assets for personal gain
Furthermore, although there is no requirement for a director to hold specific qualifications or experience, they must carry out their duties with reasonable care, skill and diligence (see below for more details on directors’ duties).
How to appoint a Company Director
The details of the first Company Director/s should be provided to Companies House during the company formation process. One may add newly appointed directors after company formation or remove directors who resign or need to be removed. Companies may, however, set additional rules for appointing directors in their articles of association.
Before adding a new Company Director, the director whom you wish to appoint must sign a letter of consent to confirm that she-or-he wishes to take the role of director. You must also seek approval from the majority of members through the passing of an ordinary resolution through a shareholders’ vote. If the company’s constitution allows then the existing directors can also appoint new directors when required.
Once a director has been appointed, the company must maintain a register of directors at its registered office. Companies are also required to notify Companies House of any new appointments within 14 days. This can be done easily online through Companies House WebFiling by submitting form AP01. You will need to provide details of the:
- Company name
- Full name of the new director
- Company registration number (CRN)
- Date of appointment
- Date of birth of the new director
- Nationality of the new director
- Occupation of the new director
- Residential address of the new director
- Service address of the new director
To appoint a corporate director, you must complete and submit form AP02 through Companies House WebFiling.
What are the legal duties of a Company Director in the UK?
The Companies Act 2006 sets out the duties of a Director of a Limited Company. These legal duties ensure that directors act in the best interests of the company and its shareholders. Company Directors must adhere to the following duties under the act:
- Duty to act within powers – This means that Company Directors must adhere to the company’s constitution and use their powers only for the purposes for which they were conferred.
- Duty to promote the success of the company – Directors must act in a way that benefits the company, considering factors such as the effect of their decisions on employees, the community, and the environment.
- Duty to exercise independent judgment – Directors are required to make decisions without the influence of third parties or personal interests.
- Duty to exercise reasonable care, skill and diligence – Company Directors are expected to have the knowledge and experience necessary to make informed decisions.
- Duty to avoid conflicts of interest – Directors must avoid situations in which their personal interests conflict with those of the company.
- Duty not to accept benefits from third parties – Directors should never accept benefits or gifts that may compromise their decision-making.
- Duty to declare an interest in a proposed transaction – Directors must disclose any direct or indirect interest that they may have in company transactions.
It is important to understand that any breach of these legal duties can result in personal liability and legal consequences. For this reason, we recommend keeping records of your actions and decisions at all times. This can be achieved by keeping minutes of board meetings, which must be kept for 10 years.
What are the management duties of a Company Director?
In addition to meeting their duties, Company Directors must also fulfil certain management tasks, including:
- Keep company details up to date and report changes to Companies House and HMRC.
- Maintain statutory company records and make them available for inspection.
- Ensure accurate accounting records are kept.
- Monitor the company’s financial health.
- Take steps to reduce losses if the company is in financial trouble.
- File annual accounts, confirmation statements and tax returns on time.
- Pay Corporation Tax and other taxes by the deadlines.
- Organise general and board meetings.
- Prepare and distribute meeting minutes.
Completing these tasks will ensure that your business is compliant with the law and that you are viewed as fulfilling your role as a director.
What constitutes a conflict of interest as a Company Director?
If a Company Director is working with more than one company then they have a legal duty to make sure that their actions do not create a conflict between the interests of the companies they represent. In cases of potential conflict directors must fully disclose their involvement and take steps to mitigate any effect upon their decision-making.
Company articles may include additional rules on conflicts of interest, such as limiting the number of family members who may serve on the board or defining restrictions on transactions involving related parties.
How to remove a Company Director
A company may also, by ordinary resolution at a meeting, remove a director before the expiration of his period of office, notwithstanding anything in any agreement between the director and the company. The articles of association usually provide for the automatic termination of appointment as a director in the following cases:
- The bankruptcy of the director;
- Physical or mental incapability of the director;
- Voluntary resignation;
- A person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law.
Form TM01 should be completed and submitted to Companies House to inform them about the termination of a director.
How to resign as a Company Director
Resigning as a Company Director involves following a formal process. At any time, a director can give written notice to the company, including an intended resignation date. The resignation takes effect from the date on which the notice is received by the company or later if specified in the notice.
The letter of resignation should include a statement of resignation, an acknowledgement and waiver of claims, clarification of the governing law and jurisdiction, the name and signature of the director and the name, address, occupation and signature of a witness. Form TM01 (Terminate an appointment of a director) should be completed and submitted to Companies House within 14 days of the effective date of the director’s resignation.
Remember: Even if you resign as a Company Director, you will still remain liable for offences which occurred during your tenure with that organisation.
Final words
Company Director is a position of privilege, responsibility and authority that is taken seriously in the UK. Directors play a pivotal role in ensuring the success and sustainability of the company while adhering to the legal duties set out in the Companies Act 2006. By taking the time to understand your role, legal duties and responsibilities, day-to-day tasks and potential liabilities as a Director of a Limited Company, you can ensure that you and your business remain compliant with the law at all times.
