Directors

A director is a term used to define a person "occupying the position of director".

In today's corporate world, there are a vast number of different names used to describe the board members of a company and their relevant roles, from an executive director, non-executive director, c-suite executive, managing director, and the traditional director. 

The name is not important, but the classification as a director is vital, as being a director of a company has attached to it duties owed to other directors, members of the company, and the company itself. 

As well as providing advice in relation to the position of director, our Employment Team are well versed in drafting and advising in respect of director's service agreements.

When appointed to the board of a company, a director has seven general duties codified under the Companies Act 2006 (Act), which are legal obligations owed to the Company (Duties).

The  Duties have developed over time through case law, and a breach of these codified Duties can leave directors exposed to personal liability, both under the Act and other laws and regulations.

The Duties prescribed by the Act are:

The duty to act within powers - Directors must act within the powers that have been conferred on them by the company's constitution and only exercise powers for the purposes for which they are conferred.

The duty to promote the success of the company - Directors must act in a way that they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

The duty to exercise independent judgment - Directors must exercise their own independent judgment when making decisions on behalf of the company without subordinating or delegating their powers to others.

The duty to exercise reasonable care, skill and diligence - Directors must exercise reasonable care, skill and diligence when making decisions on behalf of the company. This means that they must act in a way that a reasonable and prudent director would act in the same circumstances, which, at times, can be difficult to determine.

The duty to avoid conflicts of interest - Without the Company's consent, a director must not place themselves in a position where there is a conflict, or possible conflict, between the Duties and either their personal interests or other duties they owe to a third party.

The duty not to accept benefits from third parties - A director must not accept benefits from third parties in return for acting in a particular way.

The duty to declare interest in a proposed transaction or arrangement with the company - A director is required to declare the nature and extent of any interest that they have in a proposed transaction or arrangement with the company. This duty applies to any interest that arises before the company enters into any transaction or arrangement, whether direct or indirect, and whether financial or non-financial.

There is also an uncodified duty owed to creditors.

The "creditor duty" becomes relevant in the context of approaching insolvency, where insolvency proceedings become probable. Any clients wishing to discuss potential insolvency issues can speak with our Insolvency & Restructuring Team.

If there is a dispute between shareholders or directors, one option is to remove a problematic director.

The situation can be challenging if the director in question does not leave voluntarily; however, there is a useful mechanism available to shareholders, under section 168 of the Act, to terminate an unwanted person's directorship.

During the removal process, strict timing formalities must be followed.

Failure to adhere to these formalities risks undermining the entire process.

Therefore, preparation and careful planning are essential.

Our corporate solicitors can provide the company and its directors with the necessary advice in this regard.

A vital first step to the removal of a director is to review the company's constitutional documents as well as any investment agreements or shareholder agreements.

Additionally, it is worth considering whether the terms of any service agreements apply and whether contractually agreed termination provisions need to be followed.

As this situation is not normally amicable, as well as providing legally compliant advice, we work closely with our Commercial Litigation Team and Employment Team to ensure that the interests of the director facing the removal or the company removing the director are protected.

Before establishing a limited company, it's crucial to ensure that this corporate structure aligns with the desired goals of the business.

Myerson's Corporate solicitors can provide advice in respect of different types of business structures and assist with the formation of new companies.

Once a company is incorporated, a large amount of company information is required to be filed at Companies House, and a Company must ensure that its records are kept up to date.

It is the responsibility of a director or company secretary to accurately maintain the statutory books of a Company and ensure that the relevant documents are filed at Companies House in the correct manner within the prescribed time limits.

Failing to do so may constitute an offence and give rise to fines. Also, at the time of selling your company, it is important to have such housekeeping in order to avoid any last-minute delays or issues. 

Myerson's Corporate solicitors can assist by updating statutory books, reconstituting lost statutory books, and assisting with the filing of routine documents at Companies House.

Directors of a Company should regularly have board meetings where decisions can be made collectively regarding issues affecting the company.

During board meetings, directors must provide consent, approve and vote on specific company matters, and follow procedures outlined in the company's constitution.

It is both a legal requirement and essential for maintaining good order to record and retain meeting minutes, including those involving shareholders, such as general meetings and shareholder resolutions.

Myerson's corporate lawyers offer advice on meetings and procedures outlined in the Act and a company's constitution.

Our corporate solicitors can draft board minutes and resolutions, providing tailored advice accordingly.

When a company goes into liquidation, the director's role changes.

Directors are typically tasked with assisting the appointed liquidator by providing necessary information about the company's affairs.

Depending on the circumstances, directors might face personal liability for company debts if they are found to have acted improperly.

Directors of a company can resign; however, they should address their resignation by taking the following steps (some of which are legal requirements and others are good practice):

1. Review the company's articles of association and any applicable laws or regulations regarding director resignation procedures.
2. Notify board members of your intention to resign, typically by submitting a formal resignation letter.
3. Hold a board meeting to officially accept your resignation and record the decision in the meeting minutes.
4. Complete any necessary paperwork or filings required by relevant authorities, such as notifying Companies House in the UK.
5. Transfer any company assets or pass on any responsibilities as needed and ensure a smooth transition for your successor.
6. Fulfil any outstanding obligations or duties you have as a director before your resignation takes effect.
7. Update relevant parties, such as the bank, about your resignation.

It's recommended that you seek legal advice to ensure compliance with all legal requirements and to protect your interests during the resignation process.

A company secretary is different to a director.

A company secretary is responsible for administrative tasks and ensuring compliance with legal and regulatory requirements, while a director is involved in managing the company's affairs, making decisions, and has legal responsibilities in relation to the company's actions.

To add a director to a company, follow these steps:

1. Check the company's articles of association, any shareholders’ agreement and any relevant laws or regulations regarding the appointment of directors to ensure compliance with the procedures outlined.
2. Hold a board meeting to discuss and approve the appointment of the new director. Ensure that the meeting is properly convened and minuted according to the company's procedures.
3. Obtain the consent of the individual you wish to appoint as a director. They must be willing to accept the responsibilities and duties associated with the role in the organisation.
4. Complete and file the necessary paperwork with the appropriate authorities. For example, this will include submitting a Companies House Form AP01 .
5. Update the company's records to reflect the appointment of the new director, including updating the company's register of directors and notifying relevant stakeholders (such as the bank).
6. Provide the new director with any necessary information, documentation, and training to ensure they understand their roles, responsibilities, and obligations as a director of the company.
7. Ensure that the new director is included in future board meetings and decision-making processes.

Myerson Solicitors' corporate lawyers have experience assisting the transition of a new director into a business.

It is crucial to get legal advice to ensure the newly appointed director is advised correctly.

In the UK, private companies limited by shares must have a minimum of one director, while public limited companies (PLCs) must have a minimum of two directors.

There is no maximum limit on the number of directors a company can have; however, it's important to consider practicality and efficiency when appointing multiple directors.

Again, the constitution of the company (the articles of association or a shareholders’ agreement) should be reviewed as minimum or maximum numbers may be set out.

A director can be made personally liable when they breach their legal duties, engage in wrongful trading or commit fraud.

Furthermore, personal liability may also arise in circumstances of corporate manslaughter, when a director fails to prevent the company from trading while insolvent or when they act beyond their authority.

The legal responsibility for directors lasts as long as they hold their position as directors and even extends beyond that, particularly in cases of breaches or misconduct during their tenure.

Any party with a legal interest in the affairs of the company, such as shareholders, creditors, or regulatory authorities, may be able to pursue a director for breach of duties or misconduct.

Additionally, liquidators or administrators appointed to wind up or rescue the company may also have the authority to pursue legal action against directors for the benefit of creditors.