To be eligible to be a director of a UK registered company, a candidate must be
- An individual who is 16 years of age or more, or
- Another company, registered in the UK or abroad (a corporate director)
The following cannot be a director of a UK company.
- An individual disqualified from acting as a director by a UK court.
- An individual who is currently bankrupt or subject to a debt relief order
- An individual or company subject to UK sanctions.
A director of a UK company does not need to be a UK resident or a UK national. All companies must have at least one director who is an individual.
The process of appointing a director is set out in a company’s Articles of Association. The model Articles of Association included in the Companies Act 2006 are used as the basis for the Articles of Association by the majority of companies formed in the UK.
The model Articles of Association allow the appointment of the directors either by;
- An ordinary resolution of the company’s shareholders; or
- A decision of the directors. Small companies generally rely on the directors to decide on additions to their board.
The Companies Act 2006 sets out seven statutory duties owed to companies by their directors. They are as follows:
- To act in accordance with the Articles of Association and only exercise powers for which they were conferred.
- To promote the success of the company. A director must act, to the best of his ability, for the benefit of the company and its shareholders. However, in promoting his company, he should also have regard to:
- The long term effects of his actions and the reputation of his company, and
- The interests of other stakeholders in the company such as employees, the community, the environment, suppliers and customers.
- To exercise independent judgement. A director should not be influenced by, for instance, a significant shareholder or a fellow director, when making decisions.
- To exercise reasonable care, skill and diligence.
- To avoid conflicts of interest.
- To refuse benefits from third parties offered to him because he is a director and in particular, for an action or an inaction that benefits that third party and possibly not the company.
- To declare an interest in a proposed transaction or arrangement.
The protection from personal financial liability protects the owners and guarantors of a company rather than its directors. Directors are responsible for the actions of the company and its staff. A director is potentially culpable, even if not directly involved, in a wrongful action by the company or its staff. Directors have to have systems in place which ensure that there is no wrongdoing by the company.
Examples are given below of instances where directors who fail in their responsibilities can be held personally liable:
- Breaches of company law- for failing to file accounts or filing incorrect accounts.
- In insolvency matters- for fraudulent trading or preferential treatment of some creditors.
- In employment law- for acts of discrimination or harassment.
- Pension law- where there are shortfalls in the amounts contributed by the company to a company pension scheme.
- In Environmental law- There are instances of severe cases which have resulted in the death of an employee or a member of the public, and the directors have been found guilty of corporate manslaughter.
- Regulatory law- for deliberate breaches of the Money Laundering Regulations
- Business Crime- a director who is too weak to deal with or turns a ‘blind eye’ to the crimes committed by other directors of the company, may find himself liable.
Many insurance companies offer professional indemnity protection for directors. This type of insurance can protect directors from personal liability when consumers and employees bring an action against a director. Some insurance policies also fund the legal costs of defending an action.
Consent to Act
From 2015 the Small Business, Employment and Enterprise Act came into force. The Act requires new directors to give their consent to their appointment. Companies are also obliged to notify Companies House that a newly appointed director has given his or her consent to the appointment.
The Act was introduced to help resolve disputes where a director or company secretary denies that they agreed to the appointment. Where an officer of a company does deny they gave consent, the company will be asked to provide documentary evidence. We give below a sample form for our clients to use:
When you use Smart Formations to form your company or to notify Companies House of a new director’s appointment, you will be asked to tick a “consent to act” box which provides electronic compliance with the Act.
Executive and non-executive directors
An executive director is a member of the board of directors who has responsibilities for the day to day management of a company.
A non-executive director is also a member of the board, but without any day to day responsibilities in the company.
Maintaining Record of Directors
It is the responsibility of the directors:
- To maintain the company’s register of directors about appointments and resignations of directors.
- To update Companies House within 14 days of any changes relating to directors of a company.
If you wish to appoint a director, you can do so free of charge by logging into your account with us this will update the register of directors and update the records at Companies House.
Alternatively, you can order the appointment service £20.
When appointing a director do not forget to use the free of charge directors consent form which can be downloaded via the link above.