Who can become a limited company director?

Becoming a director of a limited company can be very rewarding, although the position brings with it a number of responsibilities.

As a director, you must also follow certain statutory rules in addition to your obligations to the company and employees.

Although almost anyone can hold the position, not everyone is suited to the role.

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 who can be company directors, the 2006 Companies Act imposed a minimum age limit of 16.

According to the Act, any company with an underage 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.

Disqualifications

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 that 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 liquidated company for 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 corporate directorships were due to be introduced in 2016 as part of the government’s plan to encourage greater accountability and transparency, but this didn’t happen then.

As of 2023, the Economic Crime and Corporate Transparency Act 2023 was passed, emphasising the removal of corporate directorships unless specific exemptions apply.

Only UK corporate entities with legal personality will be capable of acting as a corporate director. We will prohibit the use of overseas companies from acting as corporate directors in the UK.

This may have implications depending on the company’s structure. Corporate directors are now largely prohibited unless they meet new requirements.

Service contract

You don’t have to be employed by the company or 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 company directors as a lawyer or accountant, for example, you may also be legally regarded as a director or shadow director.

Non-executive directors

A non-executive director may be less involved in a company’s management but is still a full member of the board of directors and, as such, is responsible for its success.

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. 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.
• Directors must also ensure compliance with anti-money laundering (AML) and other evolving regulatory requirements.
• Do not divert opportunities available to the company for your own gain.
• The Economic Crime and Corporate Transparency Act 2023 introduces identity verification for directors and tighter controls on information filed with Companies House. You should be aware of these new requirements.

The above list is not exhaustive, and you should always ensure you fully understand your responsibilities before taking on the role of company director.

How many directors must a company have?

All limited companies must have at least one director. Each director must have a UK registered address, even if they are not resident in the country.

What about the company secretary role?

The company secretary role is optional for standard limited companies. Before the introduction of the 2006 Companies Act, it was mandatory.

However, public limited companies (PLCs) must appoint a company secretary.

You may still decide to appoint a secretary to undertake any of the company’s administrative roles.

A director can also be a secretary, although the director(s) are ultimately responsible for any decisions made on behalf of the company.