Welcome in the series notes of “Corporate and Business Law” ACCA F4 paper, In this article we will discuss about the topic “Directors”.
Director or directors are the person/persons who is responsible for the running of the business, shareholders are the owner of the business or the company and directors run that company on behalf of the shareholder. Directors such as CEO and CFO.
Directors are based on their functions not by their titles and must be 16 or above in age and should be a natural person means a living person.
Person who elected or appointed as a director by “Article of Association” is known as “De Jure Director.
A person who is not a director but perform all the duties of a director is said to be “De Facto Director“.
All the employee including management obey this person and work according to him/her.
Types of Directors
There are different types of directors such as:
CEO Or MD
They carryout day to day management functions and operation, The play dual role 1 as member of board or as a executive officer. The CEO or MD can sign on any contract of the company because they authority.
These are the similar with “De Facto Director“. Rules is applied on these and other directors as well.
These are involved in management functions and work as a full time employee based on salary. These perform specific tasks or contracts and they have specific title like finance director or sales director.
Non-Executive Director (NED)
- They do not work as a full time employee
- They are from outside and are expert in their work
- Give independent vision
- Control over executive directors but has similar duties and rules with executive directors.
Chairman of Board
- He is the spokesperson of the company.
- And has voting right in the board meeting.
- He is the chair person in the meeting
- They attend the meeting on behalf of a director who is unable to vote in the meeting then these alternate director helps the director to give the vote.
- He can be a director of another company or an outsider.
- Public company has at least two directors where as private company has only one.
- There is no maximum number of directors but can be specified by the articles.
Procedure for Appointing
- Can be appointed by existing directors or by passing the ordinary resolution
- In the public company usually choose by giving the vote (under s160, Companies Act 2006)
Public Company Models Articles
- After the incorporation of a company in the first annual general meeting the directors retire and ask for re-election by an ordinary resolution.
- In every AGM mostly directors are retire or re-elected
- If their is an empty place for a director the board can fill it until the next AGM.
After appointing the new director company must inform or notify the companies house within the 14 days and enter details in the director register.
- Any director can not work more then 2 years until or unless shareholders appoint him/her again by passing an ordinary resolution. (s188 CA2006)
- If the s188, CA2006 breach occur then director can be terminate by giving appropriate notice.
- Directors remuneration report must be prepared every year. It should contain (Date of contract, expiry and notice period), (Provision for earlier termination before the contract), (And other provision for termination).
Disqualification of a Director
A person who is not qualify for as a director can not involve in the management or he/she can not work as a liquidator nor he/she can be a receiver or promoter of a company.
General Misconducts in connection with the company
- If serious conviction occurs in connection a person may disqualified for 15 years.
- If he breach the rule of CA2006, he may be disqualified for 5 years breach such as failure to file returns.
- Where Department of Business, Innovations or skills found that the person is unfit for the position of a director or management.
- If a liquidator found that a person who is serving as a director not fit for management, he maybe disqualified for 2 years minimum ad maximum of 15 years.
Other Disqualification cases
- If involve in fraudulent or wrongful trading (maximum of 15 years disqualification)
- If he is bankrupt
- Taking work from other person as a director
- It is a criminal offence may be can fine or imprisonment on a person
- Disqualified director is liable for companies debts which occurs during his time
Removal of Director
Director can be removed by passing ordinary resolution under s168, CA2006 if there is nothing mentioned in,
- Or agreement
Procedure for removing a director
- 28 Days Special Notice
- Give the meeting notice to the directors and the members who has voting rights
- Directors can require written representation by the members
- Director can read the representation, can speak in the meeting, ordinary resolution is necessary for removal of a director.
Duties of a Director
Duties of a director is now replaced or made specific by the statutory, it define under the s170, Companies Act 2006. Before the Companies Act 2006, only fiduciary duties were imposed on the directors.
S171, Duties to Act Within the Powers
Direct should follow the company’s constitution or work according to his power or within his authority. He should use his power for only company’s interest.
If a director act for his personal interest then it will be stop until shareholders allow him for that act.
S172, Duties to Promote the Success of the Company
Directors must work or fill his duties with honesty, so he can promote the success for the company, and he should work in company’s and shareholders interest.
- Effects in short and long term for a project or decision
- Work in the company’s and employees interest
- Make good relation with supplier and customers
- Lock and check the impacts of business work on environment
- Maintaining a high standard for a company
- Act fairly between the all member of the company
Directors duties are vary according to organization nature, shareholders or company interest is not only the duty of a director but it may vary according to business or organization nature.
S173, Duty to exercise independent judgement
Director should be judge independently.
It consist of two elements:
Objective Test: Directors should know about the work which is given to him, he should expert with dealing and managing the difficulties. He should generally know about the company.
Subjective Test: A director should know about his own skills and about his degree skills, as hope from other person of the same field.
- He should have knowledge about general matters about the company which a director must know.
- Director has special skills and have general knowledge about a company
- He should have actual knowledge and experience which is necessary for a director
If there are so many directors in a company then they should avoid from conflict because they both work for a same company so if the increase their hate and conflict, it will not be better for a company’s future.
Power of the Directors
Shareholders has power to take major decision about business where as directors manage the day to day activities in a business.
The power of a director is defined in the “Article Of Association“. If there is mentioned in the article that every decision must be taken by the board of directors then members can not take action or can stop them on their decision as directors are the agent of the company not the member (shareholders).
- They can take action by resolution
- Members can remove the director by passing an ordinary resolution
- Member can change or can make changes in the articles by passing the special resolution
Control of a Director
Directors are only responsible to manage day to day activities in the business. Members or shareholders can think about their own interest but director can not.
Mostly decision is taking if there is majority of vote satisfies sometimes by 50% or 75%, shareholder who has very low shares in a company may not take taste of taking or making decision in a company.
Authority of Director
Express Authority: Power given in written contract or agreement.
Implied Authority: Expect from a director because of his position and status as a director.
Apparent/Ostensible Authority: Whether a director has not authority for binding the contract but he does on the behalf of members or other directors because he represent himself as a director.
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