A guide to the appointment of directors

It is during the formation process itself that a company’s first directors are appointed. A company cannot be formed without any directors and so the first directors are appointed by including their names and details on the formation application (Form IN01) submitted to Companies House. These first directors automatically assume office on the date of incorporation and their details should be the first entries on the register of directors.

It is the company’s first shareholders (known as the ‘subscribers’) that are responsible for the appointment of the first directors of the company.

 

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Once a company has been formed, the process of appointing subsequent directors is usually a little more involved. This article explores the steps that you should take when adding further directors to a limited company. The process is broadly similar for a public company but there may be some additional requirements.

1 First steps

It is the company’s existing board of directors (or a nominated subcommittee) that launch the process of appointing a new director. They do this by defining the gap that the new appointment will fill. The new appointment could be to replace a member of the board that has recently resigned or to bolster the skills of the existing board. Either way it is essential that the company’s management team define the qualities they are looking for and create a profile of the ideal candidate. With this profile the company can begin the process of identifying suitable applicants (perhaps with the help of a recruitment agent) and the board can select the most fitting candidate.

At this stage, the board should also consider whether there are any restrictions that prevent the appointment of a potential candidate. This includes ensuring that the candidate is over 16; has not been disqualified from undertaking the role of director; is not bankrupt and is not the company’s auditor. You can find further details on any restrictions that may apply in our article considering who to appoint as a company director.

2 Draft new director's service contract

By law every executive director should have a service contract, and section 228 of the Companies Act 2006 states that a copy of this must be available for inspection at the company’s registered office address or SAIL address. This contract should include (among other things):

  • The name of the employing company.
  • The appointment and employment start date(s).
  • The notice period required to terminate the appointment.
  • Details of the director’s statutory and other duties.
  • Details of the director’s remuneration, including when such remuneration will be reviewed.
  • Details of any commission or profit-sharing arrangements.
  • Details of any compensation due for early termination.

It is best practice for the board to approve the terms of the service contract, usually when they approve the appointment of the new director.

One point to note with regards to the service contract, is that if it guarantees the director a period of employment that is longer than two years, then section 188 of the Companies Act 2006 requires that the contract be ‘approved…by [ordinary] resolution of the members of the company’.

 

Having completed these initial steps it is the company’s articles of association that dictate the path that must be followed to formally appoint the new director.

3 Consult the articles of association

When considering the appointment of directors, you should always check the company’s articles of association. It is the articles that govern the formal process for adding a director to a limited company.

Model articles of association

Many smaller private companies are formed with model articles of association. Part 2, section 17 of these model articles states that:

Any person that is willing to act as director, and is permitted to do so by law, may be appointed to be a director…by ordinary resolution, or…by a decision of the directors.

Model articles of association thereby allow formal appointment of directors by either board or shareholder resolution. They do not require that an appointment by the board be authorised by the shareholders at the next AGM (as Table A articles do).

Table A articles of association

For companies registered before 1st October 2009 that have not updated their articles of association, Table A articles apply. For these companies, article 79 states that:

The directors may appoint a person who is willing to act to be a director, either to fill a vacancy or as an additional director.

However, note that unless the articles have been modified, the newly appointed director can only hold office until the next annual general meeting. He should then be reappointed by an ordinary resolution of the shareholders at the same annual general meeting.

Article 78 of Table A articles of association also allows that a director can be appointed by an ordinary resolution of the shareholders. In this case, no further approval of the appointment will be required at the next AGM.

Other provisions that may be contained in the articles

Some companies have bespoke articles of association. These may contain specific provisions that affect the appointment of directors. For example:

  • They may dictate that new appointments to the board can only be made via an ordinary resolution of the shareholders.
  • They may require that new director appointments are approved by more than a simple majority of shareholders.
  • They may allow the directors or shareholders of a holding company to appoint the directors of a subsidiary company.
  • They might allow the board to appoint a new director but require that this is approved by shareholders at the next general meeting (as per Table A articles).
  • They might dictate a maximum number of directors.
  • They might require a minimum number of directors. Model articles require a minimum of one ‘natural’ director (for private limited companies) but article 64 of unmodified Table A articles requires a minimum of two directors.
  • They may require a set number or proportion of directors to resign each year, usually for reappointment or replacement by shareholder vote at an AGM.

4 Seek approval for appointment of new director

So, it is the company’s articles of association that determine how the appointment of a new director should be approved. Let us look in more detail at how the approval process usually works.

Appointment by the board

Having found a suitable candidate, and if the articles of association allow, a new director can often be appointed by resolution of the board. Approval can either be sought at a routine board meeting or alternatively via a written directors’ resolution sent to and signed by each of the existing directors. If your company has adopted model articles of association then approval of the appointment can be achieved by a simple majority decision at the board meeting. However, if you choose to use the written resolution route then model articles require that you receive and retain signed resolutions from all the directors, showing their unanimous agreement to the new appointment. You should refer to your company’s articles of association to confirm the level of approval required.

At the same time as approving the new director appointment the board will often approve the director’s service contract. If the approval is being sought via a written resolution then the draft service contract should be attached to the resolution.

If you register with Inform Direct you will have access to template written resolutions and board minutes to support the appointment of a director, corporate director and/or company secretary.

Appointment by ordinary resolution of the shareholders

Alternatively, having found a suitable candidate, the board can propose the new director appointment to the shareholders for their approval. If the approval is to be given during a general meeting then the following procedure should be followed:

  • Call a general meeting of the shareholders. At least 14 days’ notice must be given of the meeting, unless a shorter period of notice has been agreed by members holding at least 90% of a private company’s shares.
  • Provide shareholders with details of the ordinary resolution. As well as providing the wording of the resolution, you may also consider enclosing other supporting information such as the candidate’s profile and a message from the board explaining why they recommend the new appointment.
  • Put the ordinary resolution to the vote. Approval of the director appointment can be given by a simple majority (over 50%) of shareholders present in person or by proxy at the meeting, and entitled to vote.

In small companies with few shareholders a more practical alternative to calling a general meeting may be to send a copy of the written resolution to each shareholder. Again, approval of the director appointment is considered to have been gained if shareholders representing more than 50% of the voting rights of those entitled to vote sign the written resolution to indicate their approval. Note however, that if simple majority approval is not obtained within 28 days of the date the written resolution was sent out (the circulation date) then the resolution is deemed to have lapsed and the director appointment has not gained the necessary approval.

Remember to check your company’s articles of association. Some articles may require the appointment of a new director to be approved by more than a simple majority of shareholders.

Inform Direct can provide you with a template written shareholders’ resolution to approve the appointment of a director, or wording for the ordinary resolution to present to a general meeting of the shareholders.

The next steps would ordinarily be completed by the company secretary, or if the company has not appointed one, a nominated director that has been given approval to complete the appointment.

5 Obtain written Consent to Act

The Small Business, Enterprise and Employment Act 2015 requires the company to obtain formal ‘consent to act’ from all newly appointed directors and company secretaries. The company should ask the newly appointed director to complete and sign a Consent to Act form and this should be produced at the next board meeting. The fact that the form has been correctly completed and signed should be recorded in the board minutes.

6 Confirm the newly appointed director's details

Written confirmation of the following details should be requested. These must be provided to Companies House when the new director appointment is reported:

  • Date of appointment.
  • Full name of the new director.
  • Details of any previous names used in the last 20 years.
  • Date of birth.
  • Business occupation.
  • Usual residential address.
  • Service address.

If you download and use our free template Consent to Act as Director form these details are requested on the form.

In addition to obtaining the above details from the new director, the company should ensure that the new director is told of any share qualifications he must acquire and is informed of the need to give notice of any interest in company contracts. These and other related items are discussed in our guide entitled ‘Director appointments – checklist of things to remember’.

7 Advise Companies House of the appointment of new director

Any new director must be reported to Companies House within 14 days of the appointment, using form AP01 or form AP02 for corporate director appointments. You can complete and post a paper form, Webfile or file the details electronically using a cloud based service such as Inform Direct. Read our article explaining how quick and easy it is to appoint a new director using Inform Direct.

8 Update the Register of Directors and Register of Directors' Residential Addresses

Both registers should be updated for the newly appointed director’s details. If you choose to use Inform Direct your statutory registers are automatically updated when the electronic filing with Companies House is made.

 

What if the director appointment is defective?

Careful planning and attention to detail should ensure that the appointment of new director process is correctly followed. However, if the company becomes aware that a director appointment is defective for any reason then section 161 of the Companies Act 2006 states that:

 

The acts of a person acting as a director are valid notwithstanding that it is afterwards discovered…that there was a defect in his appointment.

 

 

No mistakes with Inform Direct

Inform Direct can help you avoid many of the most common mistakes when appointing a new director. Our intelligent software ensures that you submit the correct form to Companies House and it won’t submit the form unless you have provided all the required details and in the correct format. Having electronically filed the appointment with Companies House, Inform Direct automatically updates your statutory Register of Directors and Register of Director’ Residential Addresses for the appointment. We can also provide you with template board minutes and board resolutions; shareholder resolutions and consent to act forms, helping you to easily obtain the necessary approvals for the new appointment.


It's easy to appoint directors in Inform Direct, the innovative way to manage officer records. All online, no paper forms, no fuss.


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