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What are company directors?

Directors run the day-to-day operations of a company. There are several different types of company directors, such as executive directors (who generally hold responsibility for a specific function within a company, such as finance) and non-executive directors (who generally provide part-time input by, for example, providing independent oversight of the company’s strategy, ethics, and integrity). For more information read Different types of company director.

When directors are appointed, they become office holders. An office holder is an individual who is appointed to a position by a company but who is not under a contract of employment or similar and who does not receive regular payments. Directors do not automatically have employee status and, consequently, the employment rights associated with being an employee. A director may be considered to be an employee if they work under a genuine contract of employment with the company.

What decisions do directors make?

Directors make decisions on high level business activity. They’re given the authority to make decisions on behalf of the company subject to certain limitations set out by law and by the company’s own foundational documents. Examples of the decisions directors make include those relating to the company borrowing money, entering into contracts, acquiring assets, or employing people. In practice, directors make decisions collectively as the board of directors (ie the ‘board’) by voting at board meetings or via written resolutions

A company’s Articles of association (ie the company’s ‘articles’), which are the foundational document governing how the company is run, generally set out the process and requirements that directors must follow when making decisions. These can differ from company-to-company. The model articles (ie the standard default articles a company can choose to use as its articles, set by the Companies Act 2006) contain generic rules that will often apply to directors’ decision making. Examples rules, which are often applicable to a company’s directors, include the requirements that:

  • directors provide notice to the other directors (themselves or via the company secretary) of when and where a board meeting will be taking place, when a meeting is called for

  • a quorum (ie the minimum number of directors necessary to make a valid decision in a meeting) may never be less than 2, unless the company only has one director, in which case it may be one

  • at board meetings, directors might vote by a show of hands 

  • decisions at a board meeting are passed on a simple majority (ie over 50%)

When making decisions, directors must take into account the duties that they owe to the company. For example, the duty to promote the success of the company. 

Once a decision has been passed by the Board, it is recorded formally in the Board meeting minutes

Appointment of directors

When setting up a company, the first director(s) are appointed when the company is registered with Companies House and the director(s) are named in the registration paperwork. 

Post-incorporation (ie after the company has been registered), appointing directors requires the board to follow a formal process, which is generally set out within the company’s articles. The process may differ by company depending on what a company has set out in their articles.

The Companies Act 2006 sets certain limitations on director appointments, including requirements regarding:

  • the minimum number of directors a company must have, based on the type of company

  • persons ineligible to act as directors, and

  • having at least one director who is a natural person (ie a human individual, rather than another company)

What is a company secretary?

Company secretaries provide administrative and governance support to a company’s leadership and ensure the company is compliant with relevant laws and regulations.

Company secretaries are office holders, though may also become employees through a contract of employment. As officers of a company, they are also liable for certain company defaults (ie failures to do something they are legally obligated to do). For example, failure to file certain statutory information can result in a company secretary being fined.

Company secretary responsibilities

There are no specific prescribed duties for company secretaries. Generally, the role and duties will be laid out in a company secretary’s contract of employment. As such, a company’s management should be thoughtful about what support they will need from the secretary that they appoint.

A company secretary’s responsibilities often include:

Company secretaries of public companies also play an important role in the governance of the company, as the board’s support. Their duties are guided by the UKCG.

Appointment of company secretaries

A company can appoint as many company secretaries as it likes. However, different types of companies have different requirements for the minimum number of secretaries they must have.

As with directors, the first company secretaries are appointed when the company is registered. Post-incorporation, the process for appointing new company secretaries is usually that which is laid out in the company’s articles. 

Company secretaries of a private company are not required to have any specific qualifications and the role could even be fulfilled by a director. However, there are restrictions on who can be appointed including prohibitions on appointing:

  • the company’s auditor

  • anyone who has declared bankruptcy and not paid their debts

When appointing company secretaries of public companies, the candidate must hold specific qualifications.

What is a shareholder?

Shareholders (also known as ‘members’) are individuals or legal entities (eg other companies) who own shares in a company. Their shareholding is defined as a percentage based on the proportion of shares they hold. The first shareholders of a company, ie those who set up the company, are known as ‘subscribers’.

Shareholders are not employees of the company, nor do they run the company’s day-to-day operations like directors. They collectively determine the direction of the company’s business by voting on specific matters, and will step in to resolve matters of specific importance relating to the company’s constitution, business, or operational activities. A shareholder’s main aim is to profit from their investment in the company.

Shareholder rights

The rights of each shareholder will depend on the class of shares they hold. The most common type of share is an ordinary share, which provides members with basic rights to: 

  • vote on company decisions

  • receive dividends, and

  • receive a portion of the company’s assets if it is closed

Appointing shareholders

Subscribers become shareholders when a company is incorporated as they are named in the memorandum of association. They must be allotted at least one share each.

For new shareholders to join the company post-incorporation, the company can issue new shares to the new shareholder. They will then become a shareholder once:

  • the shares have been allotted to the new shareholder

  • the shareholder’s name has been entered onto the company’s register of members, which should be done within 2 months of allotment, and

  • the shareholder receives a certified Share certificate for their shares in the company

A company’s procedure for issuing new shares should be contained within the company’s articles. If it’s not, default procedures are provided by legislation - exactly which procedure is applicable depends on the company’s date of incorporation. There may also be restrictions set out in the company’s Shareholders’ agreement, if it has one.

Alternatively, somebody can become a shareholder by purchasing existing shares in the company from someone else. This transfer involves creating a Stock transfer form (STF) to document the transaction, and a new share certificate being issued to the new shareholder.

For more information, read Share transfers and issuing new shares.   

What is a PSC? 

PSC stands for ‘person with significant control’ over a particular company. A company’s PSCs are people (or other legal entities, such as companies) who:

  • hold more than 25% of the shares in the company

  • have control of more than 25% of the voting rights in the company

  • have the right to appoint or remove the majority of the board of directors

  • have the right to exercise significant control over the company, and/or

  • have significant control over a trust or firm that meets at least one of the first 4 conditions

Companies are required to declare anyone who meets at least one of the above conditions on its PSC register. This helps to build transparency as to who owns companies in the UK, to give parties such as potential investors a stronger idea of the influences exerted over a company.

What is a PSC register?

A company’s PSC register is a publicly available list where the company records the current relevant information of their PSCs (eg each PSC’s name, nationality, country or state or part of UK of usual residence, and information about how they have significant control over the company) to make them easily identifiable for external inquirers (eg potential investors). A company must both:

  • keep its own register, at its registered office, and

  • enter the information in the central register, by filing it with Companies House

The Economic Crime and Corporate Transparency Act 2023 will change some requirements imposed on companies in relation to the PSC register. It’s not known when these changes will become effective.

What is an auditor?

A company auditor is an individual or company who is registered with a professional accountancy body and who is responsible for reporting on a company’s annual accounts. An auditor must be appointed for each financial year, unless the directors consider it unlikely that audited accounts will be required.

What does an auditor do?

An auditor will inspect all a company’s financial records to determine whether all the company’s records are correct and compliant with the law.

They must carry out investigations into whether:

  • satisfactory accounting records have been kept by the company

  • all the company’s individual accounts align with the accounting records, and

  • whether the auditable section of the director’s report is in agreement with the accounting records (listed companies only)

An auditor must sign, date, and state their name within their reports. If the auditor is an accountancy/audit firm, then the senior statutory auditor of that firm must sign their own name on behalf of the firm.

Appointing auditors

An auditor must be independent from the company it is auditing. This means that an auditor cannot be:

  • an officer or employee of the company

  • an officer or employee of any associated undertaking of the company

  • a partner (whether in a personal or business capacity) or employee of any of the above

For each financial period, companies must appoint an auditor before the end of a 28-day period beginning with either the end of time allowed for sending out copies of the previous financial year’s annual accounts and reports or, if earlier, the date on which those copies are sent out.

The company’s first auditor will be appointed by the directors. From then on, auditors can be appointed by:

  • the members

  • the directors

  • the Secretary of State

  • by being deemed as re-appointed if no auditor is appointed by the end of the next relevant appointment period (private companies only)

What rights does an auditor have?

Auditors have certain rights regarding company information, including:

  • the right of access to the company books, accounts, and vouchers (ie the documents supporting invoices that company has received for outstanding bills payable to vendors and suppliers), and

  • the right to require relevant persons to provide explanations and information required for the performance of the auditor’s role

Auditors are also entitled to:

  • attend general meetings

  • receive any notices or communications of a general meeting that a member is entitled to, and 

  • speak at any general meeting on business that concerns them as an auditor

Importantly, only the company’s members may remove an auditor by passing an ordinary resolution at a general meeting, having provided the auditor with a special notice of their intended removal. Auditors can make representations in writing prior to the general meeting and speak at the removal meeting itself.

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