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Types of Directors - Coggle Diagram
Types of Directors
Alternate
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No authority in the Act to appoint an alternate director so alternates may only be appointed if the Articles specifically permit this
Model Articles - Plc reg. 25 make provisions for a director to appoint another director to be their alternate or they may appoint any other person as their alternate subject to that person being approved by the board
The Model Articles for private companies and companies LBG do not provide for the appointment of alternate directors
Any appointment of an alternate must be effected by a notice in writing signed by the director making the appointment and must contain a statement signed by the proposed alternate that he is willing to act as an altenrate
Alternate directors are included in the definition of director in CA2006 and accordingly if they are not already a director their particulars should be entered in the register of directors and details of their appointment notified to the Registrar using Form AP01,, this form does not differentiate between the appointment of a person as a director or as an alternate director, however it is possible to enter alternate director in the occupation field
Alternates are subject to the same rules as directors with regard to disclosure of interests in shares of traded companies and related party transactions with the company, their names must also be shown on the letterheads if it is company practice to show the names of directors on such stationery
An alternate director is entitled to the same rights as the person making the appointment in relation to any directors meetings or written resolution, including the right to receive notice of all meetings of directors and to attend and vote a meeting of the directors at which the director appointing him is not present (Model Articles Re 26)
An alternate director may only act in the absence of the appointing director, it is not a complete assignment of office by the director
The director will be deemed to be responsible for their own acts and omissions, i.e he or she will not be deemed to be the agent of the appointing director
In practice, alternate directors are most often appointed for specific board meetings in circumstances where their appoint is unable to attend but wishes their views or vote to be recorded
The appointing director may revoke the alternates appointment at any time by notice in writing to the company
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If an appointing director ceases to hold office for whatever reason the alternate director will automatically cease to hold office unless the alternate director is already a director of the company
Appointment and termination of an alternate director, unless the alternate is also a director in their own right must be notified to Companies House on form AP01 or TM01 as appropriate
Executive
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Where any or all of those senior management executives are also board directors they will be executive directors
In smaller private companies, typically all the executives will also be company directors
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The appointment of directors as executive directors is governed by provisions contained in the company's Articles, giving the directors power to appoint such directors, to determine their appointment and remuneration and to delegate to them such powers of the board as may be desired (Model Articles Plc reg 23, Ltd reg 19)
Directors who also hold salaried executive positions with the company should have a contract of employment, usually called a service contract, specifying whether the remuneration stated in the contract is exclusive or inclusive of directors fees
The agreement should also contain any provisions relating to confidentiality and some control over the director's activity in the event of their leaving the service of the company
For a smaller company, the terms of appointment could be set out in the minutes of the board meeting appointing the director and a letter sent to the director containing a copy of the minutes and asking them to confirm acceptance of the proposed appointment in writing
Non Executive
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The role of NEDs is to contribute skills and experience to board decision making that might not otherwise be available and to provide balance and challenge to poprosals brought forward by the executive team
NEDs are not employees of the company and accordingly will not have a service contract, instead the terms of their appointment will be set out in a letter of appointment
The role of NEDs is seen as increasingly important for larger, listed companies and the issue of the balance between executive and NEDs on boards has become a key tenet of good corporate governance practice
In order to provide a firm foundation to challenge the executive management team, NEDs should ideally be independent of the company and its management
Under the Governance Code, it is recommended that half of the directors be independent NEDs, excluding the Chair
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NED Indepdnece
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Has or has had within the last 3 years, a material business relationship with the company either directly or as a partner, shareholder, director or senior employee of a body that has such a relationship with the company
Has received or receives additional remuneration from the company apart from a directors fee, participates in the company's share option or a performance related pay scheme or is a member of the company's pension scheme
Has close family ties with any of the company's advisers, directors or senior employees
Holds cross directorships or has significant links with other directors through involvement in other companies or bodies
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Shadow
Any person who has not been formally appointed as a company director, does not openly participate in managing the company but on whose instructions the appointed directors and employees usually act
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A shadow director of the company is deemed to be a director of the company for all purposes (CA2006 s.251)
This is of particular relevance to the individual if the company they are a shadow director of becomes insolvent as their actions as well as those of the formally appointed directors will be reviewed by the liquidator / receiver to assess if any wrongdoing was committed and if any individuals should be held to account for any action or inaction
Professional advisers are often invited to attend meetings of the directors, sometimes on a regular basis. Such advisers must take care to restrict their advice to their area of expertise such as accountancy or property transactions. Otherwise if they provide wide ranging advice which the directors regularly take or act upon, they are likely to become shadow directors
Unlike a de facto director, a shadow director tries to conceal their involvement with the company. If a person is deemed to be a shadow director they will be just as liable as every other director and will be subject to the provisions of CA2006 and other legislation such as insolvency laws
Shadow directors re sometimes discovered only after something has gone wrong with the company, for example insolvent liquidation and the liquidator (who is responsible for recovering as much money as possible for the creditors of the company) has claimed that an individual was de facto a director of the company
De facto
A de facto director is a person who has not been formally appointed as a director but holds themselves out to be a director and carries out the acts and duties of a company director
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Unlike a shadow director, a de facto director actively holds themselves out to be a director although not formally appointed
CA2006 s.250 defines a director as 'any person occupying the position of director, by whatever name called'
A director of a company who has the title CEO is a company director while the head of business development might be given the title of business development director but it not a company director
The Act makes no distinction between different types of company directors and the rights, duties and liabilities set out in the Act apply equally to all persons occupying the position of director