Choosing a company director is essential for the success of a company. Usually, the board of directors handles the management of the organization in terms of business operations. It addresses the strategic, operational decisions and ensures that the company meets its statutory obligations. Without the right company director, a company can easily fall or fail to achieve its set goals. For this reason, a company needs to appoint a good director. Below are essential tips to help you achieve this goal.
Get the First Steps Right
So, how are directors appointed UK? Well, there are several steps that companies need to follow. One of the most important ones is determining an existing board of directors since they are responsible for appointing the next batch of directors. In such a case, the current committee or the nominated subcommittee is responsible for launching the process of electing a new director.
Their primary role is to define the gap that the newly appointed director or directors will fill. Usually, several motivations trigger the appointment of a new director. The first case is when the new appointment is required to fill the gap left by the previous director. Secondly, a new appointment could result from the desire to boost the skillet of an existing board.
Regardless of the motivating factor of this appointment, it has to be done correctly with roles and qualities adequately defined. The board responsible for this selection should also determine if there are any restrictions at this stage of the appointment process—for instance, age limits, possible disqualifications, and other legal requirements.
Creating a Service of Contract
Before taking up a new position, any appointee must understand what they are coming to do. This is also very true for company directors that will be newly appointed. The appointing team needs to come up with a drafted contract for the new director. It should follow the guidelines in the Companies Act whereby the cop must be available for inspection at the company’s SAIL or registered office address. Details included in the contract should have the following among others:
- The employing company name
- The employee appointment date should be when they are to start
- The notice period that should be given in case of termination of the contract
- Statutory details and roles of the director
- Director’s remuneration details and details of review if any
- Commission/ profit-sharing arrangement details
- Compensation details in case of wrongful or early termination
The board should always approve the terms of the service contract upon the selection of the new director. It is also good to note that such agreements can only afford the appointed director an employment term of not more than two years. Once these two first steps are adhered to, what follows next is determined by the company’s articles of association.
Look at the Article of Association
Ignoring the article of the association during the appointment of a company director is a big mistake. Note that this article governs the formal process of adding a director to the limited company. There are several types of articles of associations depending on the type of organization in question. Small private companies, for example, are formed with the model article of association. These allow for formal appointments of directors either through the board or through the shareholder resolution.
Usually, no AGM is needed to approve the appointment of the new director. The other type of article of association worth noting is table A articles of association. These apply primarily to companies that formed after 2009. In such cases, unless certain modifications are made, the appointed director can only work until the next general meeting. Articles of association may also have other additional provisions worth noting to determine how a company chooses its directors. These include:
- Dictating new appoints to the board via ordinary shareholder resolutions
- May need the approval of new directors by more than a simple majority shareholders
- May allow shareholders and directors of a holding company to appoint directors of a subsidiary company
- May indicate the maximum and minimum number of directors
The article of association depends on the company in question and may vary or have diverse details.
Seeking Approval for Appointing a New Director
The article of association pretty much determines how the directors’ appointments will go. However, there are a few details that need approval. For instance, when the board makes the appointment, the board’s resolution is responsible for this appointment. There is a need for support in such cases, most often sought during routine board meetings.
Alternatively, a written director’s resolution may be sent to all directors who then sign against it, showing that they are all on the same page. Depending on the article of association, one needs to know what the details stipulated therein are. Focus on following the details.
Obtain a Written Consent to Act before Approving the Director’s Appointment
It is crucial to obtain a written consent to act according to the Small Business enterprise and Employment act of 2015. The company should have formal written consent to appoint newly acting directors. The newly appointed directors should sign the consent act form once they are appointed. This document is then presented in the next meeting to be recorded as part of the minutes.
Once this is done, another written confirmation should be done to complete the process. This is what is provided to the House of Companies when the new director is reporting. It should capture the appointment date, the names, date, business occupation, and residential address, among other crucial details.
Choosing a company director can be a straightforward process if you understand the legal steps involved. Fortunately, there is a comprehensive guide that companies can always follow. Any appointment should follow the company’s article of association as long as the first legal requirements are met. This said, note that there may be variation with the appointment of directors, but this does not make any of them wrong.