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Appointing a NED or any other director: Get your legals right

Appointing a NED or any other director: Get your legals right

The appointment of a company director is a technical legal process that is governed by the Companies Act 2006 (CA 2006), the company’s articles of association and English common law. Previously, Companies House sent out letters to the company address of newly appointed directors to provide them with notice of their general duties and responsibilities. As many of these letters were not received by newly appointed directors, Companies House has recently announced that they will instead send the letters to the home address of directors to ensure that newly appointed directors are aware of the extensive responsibilities of a company director, and that they can. This change has inspired us to remind you of the formal legal requirements for the appointment of company directors.

A NED (non-executive director) is a company director. NEDs are members of the board of directors and have the same legal duties, responsibilities and liabilities as any other executive director. Whilst the role of a NED may vary in different businesses, there is often a long list of significant responsibilities which a NED must fulfil. Getting your legals right in appointing a NED or any other director is therefore important.

A private company must have at least one natural person as a director, whilst a public company requires at least two directors to be legally valid under the CA 2006. There is no statutory restriction on the maximum number of directors that a company may have, although the company’s articles of association may prescribe a limit. From a practical perspective, it is advisable that the board is of a sufficient size to manage the company effectively but is not too large that effective governance becomes unworkable.

To be eligible as a director, an individual must be over 16 years old. That individual must not be subject to insolvency or bankruptcy proceedings or have a conflict of interest, such as being a statutory auditor of that company. Under the CA 2006, any legal person, including a company or a limited liability partnership, may be appointed as a director. It is less common for a company to be appointed as a director of another company and some company’s articles of association may legally prohibit them to act as a director.

Any person appointed as a company director must consent to that appointment, whether they are a first director or are appointed subsequently. For first directors, the procedure for appointment is set out in the CA 2006 and requires that the details of any person appointed as a director are recorded during the company formation process. The appointment of subsequent directors is governed by the company’s articles of association and typically requires that an ordinary resolution of the shareholders or by the board is passed. If there are no provisions relating to the appointment of directors in the company’s articles of association, the members may appoint directors by ordinary resolution.

Once directors have been appointed, the company must notify Companies House within 14 days. Any subsequent changes to the board of directors must also be filed at Companies House. This includes changes to the details of directors, such as their address, and the resignation of directors.

Strictly in accordance with the law, a company must maintain two statutory director registers. The register of directors must include the details of each director’s name, service address, nationality, date of birth and occupation. In accordance with the CA 2006, a company is required to have a second, private, register that contains the home address of each director.

For the valid appointment of company directors, it is therefore necessary to comply with various legal requirements, and, as always, to know what’s in your company’s articles of association.