How to appoint a director in a company? – process & duties

Who is a director?

A company of any kind or a body incorporated under the law can run only when the company has a director or directors. A director can work full-time or could be a non-executive director. The roles of the director of any other kind of incorporated body could be different as per the name or the designation attached to the person’s name.

The primary role of any director is to make sure that all day-to-day activities of the company or the incorporated body are running efficiently while maintaining the bigger picture. The role and the job of a director are quite complex and the person is remunerated accordingly by way of wages.

The number of directors for various kinds of companies is fixed at different numbers.

What is the nature of a director’s work in a company?

A director is an executive of the company and is one of the most important people. The director would have full responsibility for the company’s working. However, if the company has an executive chairman, then the work and responsibilities of the director may be diminished accordingly.

Whether an executive or non-executive director, all directors are office-holders and are going to hold designated offices in the company. Their nature of work is usually taking charge of the company and deciding what the company will do. Other than this, the company’s daily activities will be monitored by them and may be changed as they deem fit.

Furthermore, there are various other kinds of responsibilities that a director will need to attend to, depending on their position and designation in the company.

Are there different types of directors?

Yes, there are various types of directors. Depending on the size of the company or the organization, the roles and the duties may differ according to the name given with the word “director.” Here are the various types of directors you may find under the company law of UK:

• Executive directors: People appointed as executive directors take care of the business and its activities. These directors are responsible for the following:
1. Managing the company
2. Entering into contracts on behalf of the company
3. Hiring employees and staff.
4. Firing employees and staff.
5. Looking after the business and the company’s assets.
• Non-Executive Directors: Non-executive directors do not work full-time as directors of a company. Such directors are brought in for certain objectives or for a specific purpose of the company. Furthermore, such directors help in growing the company and minimize the costs. Depending on the skills and the expertise of the director, a non-executive director may be given a specific project or work for the company. Such directors can attend general meetings and offer their advice in the field of their expertise.

Who can be appointed as a director?

The Companies Act 2006 demands every registered and limited company to have at least one director in the company. Other than this, the act also suggests that for smaller companies, the director and the shareholders of the company can be the same people.

There are certain restrictions and rules to be followed when a director is being appointed for a company. Here are the rules as per the 2006 Companies Act:

• Age Factor: A person should at least be over the age of 16 to be a director in a company. Although the act suggests that any person over or of the age of 16 can be a director in a company, for obvious reasons a person should be above the age of 18. The legal age of majority and to enter into contracts in the UK is 18.
• Nature of the Person: As per the changes brought in by 2006 Companies Act, at least one director of the company should be a natural person. With the trend of other companies forming new companies, the directors of the companies used to be companies. To change this trend, the 2006 Companies Act introduced a new clause, stating that at least one of the directors of the company should be a natural person.
• Bankruptcy: If a person, who is being chosen to be the director of a company, is an undischarged bankrupt, then the person cannot be a director. However, the person can file an appeal with the courts and become a director if the courts give the order.
• Disqualifications: With power, many people go astray. So, if a person has been disqualified to become a director, then such a person cannot become a director. There could be many reasons as to why the person had been disqualified, but if the said person appeals to the court and the court agrees, then the person can become the director. Although the person can appeal to the court and there are exemptions to this rule, the exemptions are extremely rare.

Who cannot be a director?

With the given rules of the 2006 Companies Act, there are some people who cannot be a company’s director:

1. Any person below the age of 16.
2. A person disqualified to be a director by the company’s articles of association.
3. The company’s auditor.

How to appoint a director in a company?

Here is how the directors of a company are appointed:

• Mostly, the company’s directors are appointed by the shareholders of the company. This is usually done during the AGM (annual general meeting) of the company.
• In certain extreme cases, a director is even elected in an EGM (emergency general meeting) by the shareholders of the company.
• In the case, where a spot for a director opens up or there is a vacancy for a director, then in such cases, a director is appointed by the other directors of the company as soon as possible. However, it must be remembered that the shareholders of the company must, by all means, confirm this choice.

Shareholders and their opinions on the matters of who should be a director are important.

Where is the process of the appointment of directors recorded?

Records of everything and every meeting are to be maintained by the companies mandatorily. As for the recording procedure and the appointment of directors, such records should be clearly and legibly mentioned in the AOA (articles of association) of the company. Any change in the directors or in the name of the directors should also be recorded in the AOA.

About the author

Sumit Agarwal
Sumit Agarwal (ACMA ACA India), the Managing partner of dns accountants is a highly respected accountant with expertise in helping owner-managed businesses.