Appointment & Removal of directors Flashcards
Does CA 2006 stipulate the procedure for the appointment of directors?
No, so it will be governed by the company’s Articles.
What do the model articles state in relation to the appointment of a director?
MA states a company may appoint a director by an ordinary resolution of the shareholders or by a decision of the directors.
It is usual for the board of directors to appoint new directors under MA because it is easier to put into effect.
What is a service contract?
An executive director will be an employee of the company as well as one of its officers. As an employee, they should be given a written contract of employment (otherwise known as a service contract), setting out the terms and conditions of employment including duties, remuneration package, notice provisions etc.
Is there an automatic entitlement for directors to be paid for their services?
There is no automatic entitlement for directors to be paid for their services, this is something that the board can determine subject to the Articles.
Does the company have an obligation to keep its directors’ service contracts?
The company has an obligation to keep its directors’ service contracts (or, where the contracts are not in writing, a memoranda of their terms) at its registered office for inspection by the members.
Who determines the terms of the service contract and does it need shareholder approval?
MA states the terms of an individual director’s service contract are for the board to determine. As a general rule, a directors service agreement will only require the approval of a resolution of the board of directors. However, shareholder approval is required to enter into long-term service contracts.
Can an individua be a director and a shareholder?
An individual can be a shareholder, director and employee.
What are the requirements in relation to disclosure of identity of directors and secretaries?
Every company must maintain a register of its directors and should keep these registers at its registered office.
Each company must notify the Registrar of Companies of changes relating to directors or its company secretary (AP01 for Appointment of Director and AP03 for Appointment of Secretary).
The information kept at Companies House is available to the public and the register kept at the company’s office must be open for inspection by any member of the company without charge and by any other person on payment of a fee.
What information is included in the register of directors?
Name and any former name;
Service address;
The country or state in which he is usually resident;
Nationality;
Business occupation;
Date of birth.
Individual directors will still have to provide their residential address but this information will be kept on a separate secure register not available to public inspection.
What information is included in the register of secretaries?
Name and any former name;
Address – could be residential address or service address
What must be included in the notes to a company’s annual accounts?
*The directors salaries, bonus payments and pension entitlements; and
*Compensation paid to directors and past directors for loss of office.
CA 2006 also requires details to be disclosed of any payments made to, or receivable by, a person connected to such a director or a body corporate controlled by a director.
CA 2006 provides for the disclosure of information on advances and credits given by a company to its directors and guarantees entered into by a company on behalf of its directors. This applies to a person who was a director at any time during the applicable financial year.
How can a director be removed by the shareholders?
Under CA 2006, a company (i.e. the shareholders) may by ordinary resolution remove a director before the expiration of their period of office.
*Under CA 2006, special notice (28 days) is required of a removal resolution.
*It is not possible for the Board to remove a director unless Articles specifically provide for this.
*Directors who are also shareholders are allowed to vote in their capacity as a shareholder on the ordinary resolution to remove them.
What are the two ways in which a director can vacate from office?
Resignation by notice or automatic termination
What is resignation by notice?
Director can resign from the board by tendering a letter of resignation. This procedure is provided for in MA. It is usual but not obligatory, for the board to pass a board resolution accepting the letter of resignation.
What is automatic termination?
Under MA a person ceases to be a director as soon as:
*The director becomes disqualified from being a director;
*The director becomes the subject of an IVA;
*The director becomes bankrupt, or
*A registered medical practioner who is treating the director states in writing to the company that the director has become physically or mentally incapable of acting as a director and will remain so for more than three months.
