Study Notes · 51 sections
Under s.155 Companies Act 2006, a private company must have at least ONE director. A public company must have at least TWO directors (s.154). At least one director must be a NATURAL PERSON (a human, not a company) - this was introduced by the Small Business, Enterprise and Employment Act 2015 to prevent "corporate only" boards. There is NO maximum number of directors.
A person may not be appointed a director of a company if they are under the age of 16. Any appointment of a person under that age is void.
Since October 2016, every company must have at least ONE natural person director. Corporate directors (companies acting as directors) are permitted but cannot be the only directors. This ensures there is always a human who can be held accountable for the company's actions.
The first directors are named in the incorporation documents (form IN01). They serve from the date of incorporation until they retire or are removed. Their initial appointment is part of the company formation process.
After incorporation, new directors are typically appointed by the BOARD OF DIRECTORS, unless the articles specify shareholder appointment. Most articles follow the model articles, which give the board power to appoint. The appointment takes effect when the appointee accepts office (by signing the consent form).
Since 2016, companies can simply file the confirmation statement at Companies House with the updated director information, rather than filing individual forms for each appointment. However, many companies still use form TM01 for clarity and record-keeping.
A director's service contract is the contract under which a director is employed by the company (whether as an employee or under a contract for services). It includes terms about remuneration, duration, notice period, and benefits. For non-executive directors, there may be a letter of appointment rather than a full service contract.
Under s.188 CA 2006, if a director's service contract exceeds 2 YEARS, shareholder approval is required. This applies to any term that provides for a period longer than 2 years, including notice periods. The approval must be by ORDINARY RESOLUTION before the contract is entered into (or, if already entered into, before the longer term takes effect).
If a service contract exceeding 2 years is entered into without shareholder approval, the company (and the director) cannot enforce the contract beyond the 2-year period. The excess term is void, but the remainder of the contract stands. The director may have a claim against the company for the company's breach of the statutory requirement.
| Aspect | Rule |
|---|---|
| Contract term ≤ 2 years | No shareholder approval needed |
| Contract term > 2 years | Ordinary resolution required (s.188) |
| Notice period > 2 years | Counts toward the 2-year limit |
| Variation extending term | Approval required if total exceeds 2 years |
| Substantial property transaction | Special approval if director involved |
Under s.228 CA 2006, a company must keep copies of directors' service contracts at its registered office and make them available for inspection by any member during business hours. Members may request copies for a reasonable fee. This transparency allows shareholders to understand the commitments the company has made to its directors.
A company may by ordinary resolution remove a director before the expiration of their period of office, notwithstanding anything in any agreement between the director and the company.
Section 168 gives shareholders a POWER to remove a director by ordinary resolution, regardless of what the articles or any service contract says. This is a mandatory statutory provision that cannot be excluded. The director has NO contractual right to serve out their term - the shareholders' power prevails.
Special notice of 28 days must be given of any resolution to remove a director or appoint a director in place of one removed. The company must send a copy of the resolution to the director concerned, who may make written representations that must be circulated to members.
Under s.288(2) CA 2006, a written resolution CANNOT be used to remove a director. This is because directors have the right to be heard and make representations, which is only possible at a meeting. A physical meeting is required for director removal under s.168.
Although a director can be removed by ordinary resolution, they may be entitled to compensation for loss of office. This depends on their service contract and whether there is a "compensation provision" in the articles. Removal may trigger payment for lost salary, notice period, benefits, and sometimes ex-gratia payments. The company may need shareholder approval to pay substantial compensation (over £200 in a public company).
Every company must keep a register of directors at its registered office or SAIL (Single Alternative Inspection Location). The register must contain: name, any former names, date of birth, nationality, business occupation, service address, and the date they became/were removed as a director.
The register must contain BOTH a residential address AND a service address. The residential address is PROTECTED - it is not available to the public. The service address (which can be the same as the registered office) is PUBLIC. Directors can choose to use the company's registered office as their service address to keep their home address private.
Information about directors is PUBLIC except for: (1) residential addresses, (2) day of birth (only month and year are public), (3) total disqualification length (if disqualified). This information is available from Companies House and forms part of the public record. Credit reference agencies, investors, and the public can access this information.
Changes to the register must be made within 14 DAYS of the change. Failure to maintain an accurate register is a criminal offence. The company must also file changes at Companies House, though the filing deadline is more lenient than the internal record-keeping deadline.
Director disqualification is a legal ban on acting as a director of a company. A disqualified person MUST NOT act as a director, directly or indirectly, or take part in the management of a company. Breach of disqualification is a criminal offence and can lead to imprisonment and fines.
| Conduct | Maximum Disqualification |
|---|---|
| General unfit conduct | 15 years |
| Less serious cases | 2-5 years |
| Fitness test for directors of insolvent companies | Up to 15 years |
| Persistent breach of company law | Up to 5 years |
| Foreign disqualification recognised in UK | Same as original order |
Provides the framework for disqualifying directors who are unfit to be involved in company management. The Secretary of State may apply for a disqualification order where a person is unfit to act as a director of an insolvent company. The court may make a disqualification order of up to 15 years.
[2000] 1 BCLC 1
The directors of Barings Bank allowed a trader to conduct unauthorized trading from Singapore, leading to the bank's collapse. The directors argued they had no knowledge of the trader's activities.
The directors were disqualified for up to 3 years. Directors cannot escape liability by claiming ignorance - they have a duty to ensure proper oversight of the company's operations.
Directors are responsible for ensuring adequate controls and cannot rely on claims of ignorance to escape liability for unfit conduct.
Acting as a director while disqualified is a CRIMINAL offence under s.13 CDDA 1986. The maximum penalty is 2 years imprisonment and/or a fine. The prosecution must prove the person knew they were disqualified and acted as a director nonetheless.
Under s.15 CDDA 1986, a person who acts as a director while disqualified becomes personally liable for the company's debts incurred while they were acting. This means they can be sued personally for all the company's debts during that period. This is a significant deterrent - personal liability can be enormous.
A disqualified person must not act as a "shadow director" - someone whose instructions the appointed directors are accustomed to following. The prohibition extends to indirect involvement. Giving advice or instructions that directors follow can amount to acting as a shadow director, triggering both criminal liability and personal liability for debts.
Transactions entered into by a disqualified person acting as a director are NOT automatically void. The company may be bound by the transactions, but the disqualified director becomes personally liable. Third parties dealing in good faith are protected, but the disqualified director cannot escape personal liability.
A shadow director is a person who is not formally appointed as a director but whose directions or instructions the appointed directors are accustomed to following. The shadow director is not a professional adviser (lawyer, accountant, consultant) giving advice - they must be directing the company's affairs in a way that goes beyond mere advice.
[1997] BCC 568
The directors of a company followed the instructions of Mr Devereux, who was not a registered director. He made key decisions about the company's business and the appointed directors followed his guidance.
Mr Devereux was a shadow director. He was giving directions, not merely advice. The appointed directors were accustomed to following his instructions.
A shadow director is someone whose directions the appointed directors are accustomed to follow - not a professional adviser giving advice within their professional capacity.
The line between advice (permissible) and directions (shadow directorship) is factual. If the appointed directors have discretion to accept or reject the advice, it's not shadow directorship. If they "are accustomed to follow" the instructions, it is shadow directorship. The key question is: who is really making the decisions?