Members, directors, company secretary and auditors

Members

The owners of a company

Also known as shareholders if the company has share capital

First members are referred to as subscribers

Subscribers: The persons who subscribe to the memorandum of a company and who are deemed to be the first members of the company

Must be recorded in the register of members

Companies Act 2006 provides that the company's constitution binds the company and its members as though they had individually covenanted to obey their provisions

The articles of association constitute a contract between the company and its members and between the members themselves

Their rights and obligations of the members depend upon the type of share that they hold in the company

Do not owe the company a fiduciary duty and may act in their own interests

Rights of members

Attend and vote at general meetings (unless the shares are non-voting)

Inspect the minutes of general meetings and copies of financial statements

Inspect the register of members and receive a copy free of charge

Receive a dividend (if one is declared)

Receive their share in the surplus of any assets at the time the company is wound up

Transfer their shares to other subject to the terms of the articles of association

Directors

Described by Companies Act 2006 as 'any person occupying the position of director, by whatever name called'

Responsible for the management of the company's business

Owe a fiduciary duty to the company

Private company must have at least one director, public company must have at least two

Appointment of directors

First directors usually appointed by the subscribers during incorporation process

Names of first directors required to be stated on the application form by Companies Act 2006

Model articles state that any person willing to act as and who is permitted by law to do so may be appointed by ordinary resolution of the shareholders or by a decision of the directors

Companies Act 2006 provides that a person may not be appointed unless they have attained 16 years of age

De Jure Director: One who has been formally appointed to a company and whose particulars are recorded in the register of directors

De Facto Director: Where a person has not been formally appointed as a director but nevertheless fulfils the role

Individuals who make and implement significant decisions on behalf of the company and act as if they are directors may be deemed as de facto directors

Still owe the same duties to the company as a formally appointed director

Still fulfils the function of a director but the board IS NOT accustomed to act in accord with their directions or instructions

Shadow directors

Defined by Companies Act 2006 as a person in accordance with whose directions or instructions the directors of the company are accustomed to act.

Companies Act 2006 sets out that a person is not to be regarded as a shadow director by reason only that the directors act on their advice given by the shadow director in a professional capacity (eg taxation / legal advice)

General duties apply to shadow director

Shareholders with large shareholdings or beneficiaries of underlying trusts can become shadow directors if they exert significant influence over the directors to the extent that the directors become accustomed to act in accordance with their instruction

Alternate directors

Articles may provide for the directors to appoint an alternate director to attend directors' meeting on their behalf when they are unable to

Has the power to vote at the meeting in place of the elected director

Responsible for their own acts and are deemed to act on behalf of the director who appointed them

Used to be popular in offshore centres, but less common due to increase of use in corporate directors

Model articles created fro private companies do not contain provisions for alternate directors

Executive Directors: those with executive responsibilities and involved with the day to day running of the company

Non-executive directors: A director who is not involved with the day-to-day activities of the company and who can bring an independent view o the board of directors

Companies Act 2006 specifies that companies are required to have at least one director who is a natural person

The requirement for companies to have at least one director who is a natural person is not present in offshore centres

Termination of a directors appointment

Retirement

Removal: Companies Act 2006 provides that the shareholders may remove a director by ordinary resolution at a meeting

Resignation: Directors can resign in accordance with the provision of the articles

Death

Disqualification: Under the Company Directors' Disqualification Act 1986 ( eg where a person is convicted of an indictable offence or because they have been deemed unfit to be director)

That person ceases to be a director by virtue of any provision of the Companies Act 2006 or is prohibited from being a director by law

Bankruptcy order is made against that person

Composition is made with that person's creditors generally in satisfaction of that person's debts

A registered medical practitioner who is treating that person gives a written opinion to the company stating that that person has become physically or mentally incapable of acting as a director and may remain so for more than three months

By reason of that persons mental health, a court makes an order which wholly or partly prevents them from personally exercising any powers or rights which they would otherwise have

Notification is received by the company from the director that they are resigning from office and such resignation has taken effect in accordance with its terms

Powers

Derived from the company's articles

Model articles give the directors a general authority to exercise 'all the powers the company' for the purposes of fulfilling their responsibility to manage the company's business

Companies Act 2006 states that the power of the directors to bind the company, or authorise others to do so, is deemed free of any limitation under the company's constitution

Directors do not incur personal liability while acting in their capacity as a director. However they can become personally liable for example if they act outside their authority

Directors duties

Must act in good faith and should not seek to profit personally from their position as a director.

Companies Act 2006 sets out the general duties that are owed by a director of a company to the company

General duties are based upon certain common law rules and equitable principles

Companies Act 2006 shares that the general duties shall be interpreted and applied in the same way as common law rules or equitable principles and regard shale had to the corresponding common law rules and equitable principles in interpreting them

7 Directors Duties

Duty to act within powers: A director of a company must act in accordance with the company's constitution, and only exercise powers for the purposes for which they are conferred.

Duty to promote the success of the company: A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and in doing so have regard for to-
-Likely consequences of any decisions in the long term
-Interests of the company's employees
-Need to foster the company's business relationships with suppliers, customers and others
-Impact of the company's operations on the community and the environment
-Desirability of the company maintaining a reputation for high standards of business conduct
-Need to act fairly as between members of the company

Duty to exercise independent judgement: This must be exercised when fulfilling their duties

Duty not to accept benefits from third parties: A director must not accept a benefit from a third party because of their position as a director unless the benefit could not reasonable be regarded as likely to give rise to a conflict of interest

Duties to avoid conflicts of interest: A director has a duty to avoid a situation in which they have a direct or indirect interest that conflicts with the interests of the company

Duty to declare interest in proposed transaction or arrangement: If a director of a company is directly or indirectly interested in a proposed transaction in any way, they must declare the nature and extent of that interest to the other directors

Duty to exercise reasonable care, skill and diligence:A director must exercise reasonable care, skill and diligence This is considered to be that which would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions

Company Secretary

Not required by private companies

Required by public companies

In offshore centres, it is usual for the service provider or one of its subsidiaries to act as a corporate secretary

Qualifications of secretaries of public companies

Directors of public companies have a duty to take all reasonable steps to ensure that the secretary is a person who appears to them to have requisite knowledge and experience to dishier the functions of secretary of the company

Have held the office of secretary of a public company for at least three of the five years immediately preceding their appointment as secretary

A member of a professional body such as ICSA or ICAEW

A barrister, advocate or solicitor called or admitted in any part of the UK

They are a person who, by virtue of their holding or having held any other position or their being a member of any other body, appears to the directors to be capable of discharging the functions of secretary of the company

Register of secretaries

Must contain name and any former name of the secretary

Must contain their address

Address contained may the registered office address

Must be kept at the company's registered office or at a place if the company has given notice to the registrar

Must be open to inspection to any member of the company free of charge, or by any other person on payment of such fee as may be prescribed

May be liable with the company directors for penalties arising as a result of non-compliance with the Companies Act 2006

Secretaries duties

Registrar functions, including the maintenance of the statutory registers of the company

Issuing share certificates

Fling certain documents with the Registrar (ie annual returns)

Coordinating and attending meetings of the directors

Preparation of meeting agenda and notices for meetings

Preparation of minutes after meetings

Auditors

Ensuring that meetings are quorate and conducted in accordance with Companies Act 2006 and the articles

Ensuring the company meets the requirements of the Companies Act 2006 and any other relevant requirements (eg those of the stock exchange)

Powers of the secretary

Signature of the secretary is a valid alternative on occasion to a director's signature

May sign the annual return

May sign as an alternative to a second director on share certificates

Apparent authority to sign a wide range of documentation

May sign bank documentation ie account opening forms

Their role is to report to the members of the company

Their report usually expresses an opinion as to whether the financial statements have been prepared in accordance with the requirements of Companies Act 2006 and other relevant legislation

Their report must also state that the company's financial statements give a true and fair view of the company's finances if this is the case

All companies, except those exempt or dormant (as defined under Companies Act 2006) must appoint an auditor

Private companies may resolve to not appoint one if they reasonably resolve that audited accounts are unlikely to be required

Appointment of an auditor

Can be appointed by directors:

Any time before the company's first period for appointing auditors

Following a period which the company did not have an auditor any time before the company's next period for appointing auditors

To fill a casual vacancy in the office of auditor

Can be appointed by members by ordinary resolution

During a period for appointing auditors

If the directors should have appointed an auditor but failed to do so

Duties of auditors

To report to the members on the financial statements

Must be performed with due skill and care

In order to prepare their report, they have a duty to carry out investigations that will enable them to give their opinion. If unable to do so, they may state this in their report

Auditor's rights

General right to access company's, books, accounts and vouchers at all times

May require certain officers of the company to provide them with information or explanation as the think necessary for the performance of their duties

Entitled to receive all notices of and other communications relating to any general meeting which a member of a company is entitled to receive

Entitled to attend any general meeting and to speak in their capacity as auditor

Owed to the members, not its directors or creditors

Must be independent and not otherwise involved with the company or its directors