Appointing a new company director is more complex when compared with onboarding an employee. There are several steps you need to take to ensure compliance with the Companies Act 2006. In this article, we explain the formal requirements.
1. Identify the need for a new director
1. Identify the need for a new director
The Board or a nominated subcommittee must define the gap that needs to be filled by a new company director. For example, a director may have recently resigned, or the company’s strategy may require new skills and talent at the top level of the organisation. To ensure the right selection is made, it is best practice to draw up a profile of the type of person you are looking for and the abilities, education, and experience they need to possess.
2. Draft a director’s service contract
Every director must have a service contract that is available for inspection at the company’s headquarters or its Single Alternative Inspection Location (SAIL) address.
A director’s service contract must detail:
- your company name
- the director’s name and employment start date(s)
- the notice period is required to end the appointment
- details of the director’s statutory and other duties
- information regarding remuneration, including when the package will be reviewed
- details of any commission or profit-sharing arrangements
- if the director’s position is terminated before the end of the contract, what (if any) compensation will be paid?
If the new director’s appointment is for two years or more, by law you will need to get the service agreement approved by the company’s shareholders via an ordinary resolution.
3. Investigate the company’s Articles of Association
If your organisation has used the model Articles of Association, Part 2 of section 17 will state:
“Any person that is willing to act as director, and is permitted to do so by law, may be appointed to be a director...by ordinary resolution, or...by a decision of the directors.”
For companies registered before 1st October 2009 that have not updated their Articles of Association, Table A articles apply. For these companies, article 79 states that:
“The directors may appoint a person who is willing to act to be a director, either to fill a vacancy or as an additional director.”
Under Table A (unless it has been modified), a newly appointed director can only hold office until the next AGM, in which they can be appointed by ordinary resolution.
The Articles may contain other provisions relating to the appointment of a new director and these should be followed accordingly.
Who appoints directors?
Generally, directors are appointed by the shareholders at the Annual General Meeting (AGM), or in utmost circumstances, at an Extraordinary General Meeting (EGM).
How many directors are needed for a company?
Limited companies must have at least one director. If a limited company has only one director, he or she must be a human person - it cannot be another company. However, public limited companies (or "plc") must have at least two directors.
Final words
When appointing a new director it is always worth investing in legal advice to ensure the process you adopt complies with legislation and the company’s Articles.
You can get legal assistance from LawBite
When you appoint directors from a company, there are legal formalities that must be followed to ensure that the appointment is valid. LawBite has expert lawyers who will be able to help you.
Book a free 15-minute consultation to discuss your legal issues.
