After our review of directors’ responsibilities, we turn to who can and should be a company’s directors and how to appoint them. Here’s our Q&A:
1 Do directors need the word 'Director' in their job title?
There is no firm definition of a director in the Companies Acts but Companies Act 2006 does say that the word director:
includes any person occupying the position of a director, by whatever name called.
This means that anyone performing the functions of a director would be included, even if their title didn’t include the word itself – so your “Head of Marketing” can be appointed with no change to their job title.
It’s also possible that someone with a job title that includes the word “Director” may not act as a director of the company. An ‘Associate Director’ or similar title is often bestowed upon senior employees without them serving as an director of the company. However, take care that titles are not misleading, particularly to avoid any misunderstanding that an employee holds a directorship when in fact they don’t.
2 Who can and should be appointed as directors?
Every company must have at least one director and a public company must have at least two.
Directors are often individual shareholders or company employees, but do not have to be:
- Non-executive directors, who are not employees of the company, can lend objectivity and outside experience to board decision-making alongside executive directors.
- Another company can be a director, although there must always also be at least one person as a director alongside a corporate director. Some companies offer their services as corporate directors based on their expertise and continuity.
It is normal for those who control the management of the company to be appointed as directors. If directors are “accustomed to act” under the instructions of someone, that person is treated as a shadow director. The shadow director is liable for the acts of the company in much the same way as the other directors. Hence it’s important that anyone who exerts control in this way is appointed formally – we look at the procedure below.
3 Is there anyone I can't appoint as a director?
There are several restrictions on who can be appointed as a director, including that:
- The appointee must be over the age of 16
- They must not have been disqualified from acting as a company director through the decision of a court or acceptance of a voluntary disqualification undertaking
- The proposed director cannot currently be in bankruptcy, unless a court has given permission to act for the company
- Auditors may not be appointed as directors of companies for which they act.
More generally, it’s worth considering potential conflicts of interest when making appointments. This is an important area of governance that we’ll return to another time.
4 Are there any other restrictions?
As in so many areas, the company’s Articles of Association may impose additional restrictions on who can be appointed as a director. The Articles may in some cases specify:
- A maximum number of directors which must not be exceeded
- That a proposed director must hold or obtain a certain number of shares in the company
- Other professional qualifications or membership of industry bodies a director must hold
Model Article 18 of the Model Articles for private companies also includes limitations on directors continuing to act when they are physically or mentally incapable or when a composition is made with the director’s creditors in satisfaction of the director’s debts.
5 What is the procedure for appointing a Director?
The directors at company incorporation are included as part of Companies House form IN01.
Any new director appointment must be notified to Companies House within 14 days, even if the new director was already the company secretary. Promptly advising Companies House director appointments have taken place means the risk of fines is avoided.
Following incorporation, appointments must follow the procedures set down in the Articles of Association. Usually, these empower the existing board to appoint a new director or for shareholders to appoint someone who has been proposed in advance by the board.
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Companies House Form AP01 is used for appointments of people as directors and form AP02 for appointments of another company as a director. Using Inform Direct, the appropriate form for appointing a director is chosen, filled in and sent automatically when you fill in basic details of the new appointment. The details of the appointment are saved, giving you an audit trail and the director’s details can be updated at any time, with Inform Direct then automatically updating Companies House of any changes that need to be reported.
Check out our article showing how easy it is to appoint a new director in Inform Direct – and how you can make an appointment and make all sorts of other company secretarial changes completely free of charge.
Remember to update the register of directors and register of directors’ residential addresses with the new director’s details. Again, to save you effort Inform Direct will do this for you.
6 What other things do I need to think about?
Other than informing Companies House new director appointments can also prompt other actions. In our next post we run through a checklist of the other actions to consider when a director is appointed and once the Companies House forms are complete.