The Appointment of Company Directors

The word “company” means a collection of people who are said to be members of the company. In some companies each member has one vote, but in most companies the members have shares and vote in proportion to their shareholding. The first thing that the shareholders must do is to elect one or more directors of the company, who are responsible for its management. The directors may hold other titles, such as governors or trustees, but directors is the usual name in company law. Note that the shareholders cannot manage the company themselves, but can only act through the agency of directors. If they hold a meeting where they sack all the directors, then they must elect at least one new director.

The directors do not need to own shares in the company, but many companies have Articles of Association requiring some minimum shareholding for each director. Major shareholders are usually also directors, or are represented by a director, but this is not essential. Companies can own shares in other companies, and a company with a major shareholding in another company may have a representative director on the board of directors of the other company. Note that we say “representative” with caution. Strictly speaking the directors of a company owe a duty to the shareholders of a company as a body, and not to any external agency or to a subset of shareholders.

The company may also appoint a company secretary, but this is no longer essential since the 2006 Companies Act. Where no secretary is appointed, the company accountant usually acts as secretary de facto. One duty of a secretary is to advise Companies House when new directors are appointed, using form AP01. This form may be submitted electronically.

Company law now allows a company to have just one shareholder and one director. The director can legally hold a meeting with himself or herself, and needs to be able to do this in order to pay an interim dividend. In practice the company secretary or accountant will draw up the minutes of this single-person meeting, and get the director to sign them.

No qualification is normally required to be a director or secretary. This can be an issue with banks and building societies which handle huge amounts of money, but where the culture can be that of the salesperson rather than the accountant or actuary. In theory a bank is just another business and can happily be allowed to fail. In practice HM Government will intervene if a big bank goes bust, and will frequently arrange for it to be taken over by another bank.

If you become the director of a company which is also conducting a trade, and has limited liability, then you are expected to look ahead and be reasonably sure that the company can pay all its debts as they fall due. If there is doubt about this, then the company is said to have a “going concern” issue, and extra disclosures need to be made in the accounts to warn the reader of these accounts. Your accountant should advise you on this.