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