How to appoint a new director -

How to appoint a new director

Appointment of a company director

In most cases, the first company directors are those named as directors in the statement of proposed officers. They automatically become directors on the incorporation date. Particularly in small companies, the shareholder will want to manage the company too, so he will be appointed as a director.

After the company has been incorporated, a director can be appointed in accordance with the company articles, which may provide an appointment by the board or members in compliance with statutory or article restrictions. For example, the new director must have consented to act and must pass the eligibility test for mental or physical capacity as provided in Art. 18 of the model articles.

Procedure of Appointment

The appointment of a director might be provided by the company’s articles. This involves passing either an ordinary resolution of the shareholders in a general meeting or by the board resolution of directors.

Model Article 17 provides that a director may be appointed using the two methods mentioned above. The simplest way to appoint a director is by board since there is no need to call shareholders’ general meetings. However, choosing the method of appointment, all depends on the company concerned. If the existing directors are all members then a board resolution would be a normal way to appoint directors. If directors are different from the shareholders, the most appropriate would be the shareholder’s resolution.

Number of Directors

A company can have many directors, if it is required so to the company article. In accordance with the Companies Act 2006, a company must have a least one director. However, for a valid board meeting to be held (known as the quorum), it is required to have a minimum of two directors. However, a company with a sole director can still make valid decisions in accordance with model article 7(2).

Power of Directors

Companies are managed by directors, they responsible for the day-to-day management of the company. Article 3 of the model articles for private companies states that the directors are responsible for the management of the company and can exercise all the company’s power.

This power is usually exercised by passing resolutions at the board meeting. Art. 7 and 8.

The director’s power cannot be interfered by the members of the company as they do not get involved in the day-to-day running of the company. Members can only get involved when it is required to take decisions that cannot be taken by the board, and it must be in accordance with CA 2006. For example, a decision to change the company’s name.

In some cases, the directors’ power is limited as they will need approval by the members in a general meeting. For example, in the case of a substantial property transaction between the company and a company’s director. s.190(1) CA 2006. This is a significant transaction where a company purchases or sells a non-cash asset like a high-value property like a building from the company’s director or someone related to him. To avoid a conflict of interest, the company members must first pass an ordinary resolution.

Duties of Directors

Directors are subject of legal duties and responsabilities to the company for the reason of the significant position they occupy and role they might play in order to govern the company. Their duties determine what directors can or cannot do.

Company Accounts

Under section 386(1) of the Companies Act 2006, every company has a duty to keep adequate accounting records to show and explain the comapny transaction. This is a director responsability to ensure that full accounts are produced for each financial year. (s.394 CA 2006).

The Confirmation Statement

Every company must submit a confirmation statement to the Registrar of Company every 12-month period. A company director is responsible for doing this within 14 days after the company’s confirmation date. (s.853(5) CA 2006).

Dividents

It is also a director duty to recommend payment of a share of profits to shareholders if there are sufficient profit available to distribute.

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Josué Mankoto

Legal Advisor