In your company, the board of directors plays a very important role. They are the foundation of corporate governance, they consider the strategic direction of the business, and they typically manage the day to day running of your operations. Having the right board of directors in place can make all the difference to the success of your company. You want to choose people who have the right skills, expertise and specialist knowledge in key business areas.
You need to think carefully about how you choose, hire, retain and get the most out of your directors. Part of this process involves analysing the needs and direction of your business as well as the strengths and weaknesses of other key people in the business. In this article, we look at some of the legal aspects of building your board of directors, to guide you in making your decisions.
Every private limited company in the UK must have at least one director and all of the directors in the company make up the ‘board of directors’. All public limited companies must have at least two directors.
It is possible for a company to be a director of another company, but at least one director must be a ‘natural person’.
You can permit employees to have director in their job titles such as ‘sales director’ without making them legally recognised directors or members of the board.
Company directors are responsible for ensuring that the company complies with UK company law – they could be held personally liable in some circumstances where they fail in this obligation. Directors have some very specific duties set out in the companies act, as well as more general duties. Directors must:
The company secretary acts as the chief administrative officer of the company and has certain specific responsibilities under the law. Companies are no longer required to appoint a company secretary, but if you wish to do so this person will be appointed by the board of directors and may be one of the directors.
The number of directors you choose to have on the board is up to you – so long as you meet the basic minimum required by law. Having more than seven directors is generally regarded as making decision making more difficult. If you need additional expertise but do not wish to give someone decision making power, you can appoint them as a non-executive director.
When considering who to choose and how many directors you need, you need to think about all aspects of your business. You may also wish to appoint people with different viewpoints, as this can help to get a better analysis of your operations and help you to progress.
Directors must meet certain legal requirements. Firstly, if a director has been previously disqualified, they will not be permitted to sit on your board without express permission from the court.
In public limited companies, directors aged over 70 must have their appointment approved by shareholders and directors at a company general meeting. All directors must be aged over 16.
There are different options for structuring your board which may affect your decisions. Typically, UK companies have a unitary board where all board members attend meetings at the same time. However, in a tiered board structure, the company may have an operational board and a supervisory board with the same person.
Directors play a pivotal role in helping companies to achieve their strategic objectives and to operate effectively and efficiently. For more information, please contact Marcin Durlak on 0330 107 0106 or email us at business@imd.co.uk.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
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