Becoming a director of a limited company can be very rewarding, although the position brings with it a number of responsibilities. Aside from your obligations to the company and employees, as a director you also need to follow certain statutory rules.
Although almost anyone can hold the position, not everyone is suited to the role and in fact, certain individuals are disqualified from running a company. So what exactly are the rules governing the appointment of a company director?
Age limit applies
While there is no upper age limit on individuals being a company director, the 2006 Companies Act imposed a minimum age limit of 16. According to the act, any company with an under-age director on the date of implementation, must make changes in the register of directors – see section 159 of the Companies Act 2006, for further information.
You can’t become a director if:
- You are disqualified by the company’s articles of association – the rules that relate to the running of the company
- You are an undischarged bankrupt
- You have been disqualified from being a director by a court order
- You are the company’s official auditor
It’s important to note that under the Insolvency Act (1986) as the director or shadow director of a company which has gone into liquidation, you’ll be prohibited from being a director or being involved in the formation of running a company with the same, or similar name to the company liquidated, for a period of five years. However, directors aren’t automatically disqualified from being appointed a director of another company because a previous company they worked for went into liquidation. In the UK, only a court can issue an order of disqualification.
Use of corporate directors
Under the existing law, UK companies can appoint a corporate director to the board of directors, provided there is at least a natural person on the board as well. Restrictions on the use of corporate directorships were due to be introduced in 2016 as part of the government’s plan to encourage greater accountability and transparency, but this has yet to happen. No date has been set for the ban on corporate directors to be implemented although, following further consultation, it was expected to become law in 2018.
You don’t have to be employed by the company or be a shareholder to become a director, however, if you work on a part-time or full-time basis, you should have a director’s service contract. A copy of the contract should be available for inspection at the company’s registered address and you may need to register your details with Companies House. If you advise directors of a company as a lawyer or accountant, for example, you may also be legally regarded as a director, or shadow director.
A non-executive director may be less involved in the management of a company but is still a full member of the board of directors of the company and, as such, is responsible for the success of the company. In terms of statutory rules, the law doesn’t distinguish between the duties of executive and non-executive directors, so if you’re appointed as a non-executive director, you need to know what the other board members are doing and how the business is being run at all times.
Duties as a director
As mentioned above, as a company director you are in a position of trust. The extent of your authority will depend on the company’s articles of association and while you may have duties specific to your expertise, a number of duties apply to all directors. These include:
- Acting in good faith at all times to promote the success of the company and follow its constitution as stated in the memorandum and articles of association.
- Act for the benefit of members and in the interest of employees at all times.
- Take into consideration the company’s suppliers, customers, the community and the environment where you operate.
- Exercise your independent judgement and ensure there is no conflict of interest and/or duty.
- Disclose any personal interests and do not seek to vote on matters if there is a conflict of interest.
- Do not seek or offer bribes, act fraudulently or engage in wrongful trading.
- Do not allow the company to continue trading when it is insolvent.
- Do not divert opportunities available to the company for your own gain.
The above list is not exhaustive, and you should always ensure you fully understand your responsibilities before taking on the role of company director.