The role of directors

Question 1

Who are directors accountable to?

Answer 1

The company

Question 2

What basis do directors manage the company on?

Answer 2

Agency basis

Question 3

What are the key features of a shareholder?

Answer 3

They own the company and are able to control key decisions through shareholder resolutions e.g. to give directors authority to change the name of the company.

Question 4

What decisions are reserved for shareholder approval under CA 2006?

Answer 4

Changing the company name, amending articles and removing directors.

Question 5

What decisions are directors free to take without shareholder approval?

Answer 5

*Employ individuals and decide what they are paid

*Enter into contracts with customers and suppliers

*Buy and sell company property

*Raise funds by borrowing from banks and authorise the company’s assets as use as security

*Responsible for putting together company accounts and for supplying information to auditors

Question 6

What part of the statute restricts directors actions and duties?

Answer 6

Part 10 CA 2006.

Question 7

Can directors be made to account for wrongs?

Answer 7

Directors can be made to account for wrongs done through civil and criminal actions taken against them in breaching the Companies Acts.

They may also be found guilty of criminal actions and sentenced under other legislation e.g. fraud under Fraud Act 2006, Theft Act1968, insider dealing and money laundering under POCA.

Question 8

Does CA 2006 define what is a ‘director’?

Answer 8

The term ‘director’ is not defined in CA 2006. Instead CA states that ‘director’ includes any person occupying the position of a director, by whatever name called’.

Question 9

What are the three different types of directors at law?

Answer 9

 De jure;
 De facto; and
 Shadow directors

Question 10

What are de jure directors?

Answer 10

A de jure director is a director who has been validly appointed at law

Question 11

How many directors must an Ltd have?

Answer 11

At least one

Question 12

How many directors must a PLC have?

Answer 12

At least two

Question 13

How many natural person directors must a company have?

Answer 13

Although a company can be appointed as a director, every company must have at least one director who is a natural person for accountability purposes.

Question 14

Is there a max amount of directors a company can have?

Answer 14

The CA 2006 and MA do not prescribe a maximum number of directors. However, a company can put a maximum number of directors in its articles.

Question 15

What is the age limit to be appointed as a director?

Answer 15

A person may not be appointed as a director unless they are at least 16 years old.

Question 16

How has ECCTA amended CA 2006 in relation to directors?

Answer 16

ECCTA has amended CA 2006 by prohibiting a person from being appointed as a company director if that person is disqualified under director disqualification legislation unless they have permission of the Court.

Question 17

What is a de facto director?

Answer 17

Someone who assumes to act as a director but has in fact not been validly appointed. The fiduciary duties and liabilities apply to de facto directors as they do to de jure directors.

Question 18

What is the definition of a shadow director?

Answer 18

CA 2006 defines a shadow director as “a person in accordance with whose directors or instructions the directors of the company are accustomed to act”.

Question 19

Can professional advisers be shadow directors?

Answer 19

No

Question 20

What are the different types of directors in practice?

Answer 20

Executive and non-executive directors

Question 21

Does CA differentiate between executive and non-executive directors?

Answer 21

The CA does not differentiate between executive and non-executive directors, but in practice there is a distinction. However, the duties, obligations and restrictions placed on directors under CA 2006 apply to all directors, executive and non-executive.

Question 22

What are executive directors?

Answer 22

Someone who has been appointed to executive office. Such director will generally spend the majority of their time working on the business of the company and will be both an officer and employee of his company, for example, Managing Director, Finance Director and Marketing Director.

Question 23

What is a non-executive director?

Answer 23

Also an officer of the company but will not be an employee of the company. They do not take part in the day-to-day running of the company. Their role is to provide independent guidance to the board and to protect interests of shareholders.

Question 24

What are alternate directors?

Answer 24

Some companies in their articles provide for alternate directors to take the place of a director where one or more directors are absent.

An alternate director is usually either a fellow director of the company or someone who has been approved by a resolution of the board of directors.

Question 25

Does an alternate director have voting powers?

Answer 25

Yes, they have the voting powers of the absent director.

Question 26

Does the MA provide for an alternate director?

Answer 26

No

Question 27

Do the duties of directors apply equally to alternate directors?

Answer 27

It is thought that the duties of directors will apply equally to alternate directors.

Question 28

What is the role of a company secretary?

Answer 28

A company secretary’s main duties are to keep the company books up-to-date, produce minutes of board and general meetings, and make sure that all necessary filings are made at Companies House. It is not part of their role to take decisions on behalf of the company, which is the domain of either the directors or the shareholders.

Question 29

Is a private company required to have a company secretary?

Answer 29

A private company is not required to have a company secretary. Unless the articles require it to have one. If a private company does not have a company secretary, the directors (or any person the directors authorise) may do anything that the secretary was authorised to do.

Question 30

Is a public company required to have a company secretary?

Answer 30

A public company must have a company secretary.

Question 31

What knowledge must a secretary have and who appoints them?

Answer 31

A company secretary must have the requisite knowledge and experience and a particular qualification e.g. may be a solicitor or chartered accountant.

The directors appoint the secretary and are required to check that the secretary qualifies under the provisions.