Directors play an essential role in the day-to-day tasks management and success of a private limited company. Appointing the right individuals as directors is not only a legal requirement but also a decision that requires deliberation. Accordingly, in this guide, we will outline all the factors you must take into account while appointing directors in a private limited company in the UK. Moreover, we will state the steps involved in appointing a company director.
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What is a company director?
A director is an individual appointed by the shareholders to manage the routine operational tasks and determine the company’s overall financial and strategic direction. It is legally mandated that a limited company must have at least one natural director appointed at all times since it cannot operate without a director.
Furthermore, directors have several obligatory legal duties that they must carry out in line with the Companies Act 2006. A few of those responsibilities include promoting the company’s best interest and financial growth, preventing actions that could lead to conflicts of interest, preparing and reporting the company’s accounts, and staying unbiased and objective.
If you want to gain a firm grasp on a company’s director and their responsibilities, our following post will serve the purpose:
What is a Company Director and what are their responsibilities?
Steps for appointing directors in a private limited company:
The following steps are crucial to consider for shareholders when appointing directors in a private limited company:
Confirm eligibility before appointing a company director:
Before appointing a company director, the members or shareholders must confirm that the person has all the qualifications to assume the director’s position and can competently conduct their legal responsibilities.
Usually, shareholders can appoint themselves as directors to run their company if they are equipped with all the necessary knowledge, skills, and expertise. Otherwise, they can appoint directors to govern the company on their behalf. Similarly, it is commonplace for directors to hold shares in the companies they manage.
Moreover, while there are not many limitations to becoming a company director, a limited company cannot appoint a person as a director if:
- The individual is under 16.
- They are a disqualified director, i.e. they were previously terminated from another company.
- They are bankrupt and are awaiting a court order of discharge.
- A person is also the auditor of the company. Notably, an auditor cannot be appointed as a director of the company they audit. This is because auditors must be independent of the company.
- They are disqualified according to the provisions included in the company’s Articles of Association.
Review the Articles of Association:
Usually, the Articles of Association are all-encompassing, i.e. these articles outline how the company will be structured and governed. The shareholders formulate these articles as per their preferences and business requirements.
Further, the appointment of a director in a private company is also contained in the articles. Otherwise, the shareholders’ agreement can also specify the procedure for appointing a company director. Therefore, carefully reviewing the articles or shareholders’ agreement is strongly advised to appoint a new director.
Pass a board resolution:
The Articles of Association usually allow the board of directors to appoint a new director. For greater clarity, the board of directors has the right and power to appoint a director to take up a vacant position or a new director.
Likewise, a limited company’s articles can also contain a provision for granting the board of directors outright power to appoint a new director at a general meeting of the company. However, if that is the situation, the articles lay down a strict procedure which must be followed.
As previously stated, the company’s shareholders, being the owners, design the articles as per their preferences. Also, during the company formation process, the shareholders have the prime authority for appointing directors in a private limited company. Hence, they can viably assume the role of director themselves or nominate someone to perform the duties.
To learn more about the powers of shareholders, read our post:
A comprehensive guide to limited company shareholders.
Similarly, if the articles are silent on the power of the board of directors to appoint a new director, shareholders carry out this task by passing an ordinary resolution.
Notably, section 168 of the Companies Act 2006 deals with the ordinary resolution, which is called a resolution of the company shareholders. Further, it is passed by a majority vote (which is above 50%) of the eligible voters attending the shareholders’ general meeting. It is passed to decide the company’s crucial matters, such as the appointment and removal of the director.
Now, when an ordinary resolution for appointing a company director is put to a vote, a new director shall take up the role if the resolution is passed by a majority of shareholders who voted in favour of the appointment.
It is noteworthy that if the shareholders are displeased with the overall performance of a director, they retain the right to remove them from the company, which even the articles cannot restrict.
If you want to know how the termination of a company director takes place, you can certainly benefit from our blog:
How to remove a director from a limited company?
Obtain Consent from the Director:
After the majority of the shareholders approve the appointment of a director in a private company via an ordinary resolution, the director should sign a letter of consent in which they confirm their willingness to assume the position of director for the company. Besides, they must show complete agreement to perform all the legal responsibilities stated in the Companies Act 2006.
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Notify the Companies House about appointing a company director:
After the appointment of a director in a private company, it is mandatory to inform Companies House within 14 days of this appointment. You can do this by completing and submitting the form AP01 in compliance with the section 167 of the Companies Act.
In addition, you are required to fill the following details on form AP01 for appointing directors in a private limited company:
Company details:
The company’s legal name and registration number
Director details:
The director’s full name, date of birth, nationality, occupation, and residential and office addresses
Appointment details:
New company director’s appointment date.
Signatures:
The signature of the new director and an existing director or company secretary, if the company has hired any.
Lastly, Companies House will go through the filing and accordingly update the new director’s information in the public register. It usually takes place within 24 hours of submitting the form.
To learn more about the form AP01, you can visit the government website:
Update the company’s statutory register of directors:
Updating the company’s statutory register of directors and register of directors’ residential addresses is essential after appointing directors in a private limited company. This is because it ensures official records accurately show the new director’s appointment.
The register of directors is usually stored at the company’s registered office address and is publicly accessible. It is worth pointing out that updating this register is a statutory requirement under the Companies Act 2006. and failure to timely update this register may result in non-compliance issues and legal consequences.
Summary:
All in all, as an owner of a limited company, understanding all the aspects and formal procedures for appointing directors in a private limited company ensures that your company steadily climbs the ladder of growth and success.
Hence, if you are planning to appoint a new director for your limited company because its day-to-day operations have become extensive or you want to add more expertise and skill to your workforce, Accountingfirms can help you find an adept accountant who will provide you with an elaborate consultation on how you can feasibly appoint a director in compliance with HMRC and the Companies Act.
Not only that, but by finding a cost-effective accountant, you can address all the vital matters regarding your limited company, such as company set-up, corporation tax liabilities, VAT registration and VAT payment, ideal VAT scheme for your company, and the list goes on.
Hence, visit us today and effectively process your company’s overall management to promote its future advancement.
If you found this article informative, you might benefit from reading our following guides on a limited company as well:
How to set up a limited company?
Limited company advantages and disadvantages.
Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.