Chapter 6CompaniesAppointment
The documents sent to the Registrar seeking incorpora-
tion must state the company’s proposed officers, i.e.
directors and secretary. A private company need not have
a secretary but may have if desired. On registration those
officers are deemed appointed. In this way the appoint-
ment of the company’s first directors is achieved.
Subsequently, directors are usually appointed by the
members of the company in general meeting by ordinary
resolution. The board of directors is normally allowed to
fill casual vacancies, that is, vacancies which come about
because, e.g. a director dies, or resigns his directorship
before his term of office has come to an end, or to appoint
additional directors up to the permitted maximum, say
five, and so if we have only two directors the board could
appoint up to three more. Directors approved as addi-
tional or to fill casual vacancies usually hold office until
the next AGM when the members decide by ordinary
resolution whether they are to continue in office.
There are a number of new provisions in the CA
2006 that are worth noting. Under s 155, companies are
required to have at least one director who is a natural
person, i.e. an individual, so that the board cannot con-
sist of companies represented by corporate representat-
ives. Section 156 allows the Secretary of State to direct
the company to make appointments so that one director
is in place for a private company and two for a public
company. Section 157 introduces a minimum age of 16
for a natural person to be a director.
Generally, one or more full-time directors is appoin-
ted a managing director. The articles must provide for
the appointment and articles normally enable the board
to confer on the managing director any of the powers
exercisable by the board and to vary these powers.
Many of the provisions of company law, e.g. the
rules relating to directors’ loans and the disclosure of
those loans in the accounts, apply to ‘shadow directors’.
These are, under s 251, people in accordance with whose
directions or instructions the board of the company is
accustomed to act but excluding professional advisers
such as lawyers and accountants who may give the board
professional advice on which they usually act.
However, those who give advice other than purely in
a professional capacity in the sense of legal and account-
ing advice may be included. The Court of Appeal ruled
- in a case that appears to extend the definition of shadow
director – that the concepts of directionand instruction
in the definition did not exclude the giving of advice.
The company concerned was in the travel business. It
went into liquidation owing creditors an estimated £4.46
million. Disqualification proceedings were brought
successfully against three of its directors and two of
its advisers who were consultants with experience in
the travel business (see Secretary of State for Trade and
Industryv Deverell(2000)). It should be noted that such
a disqualification also prevents the holding of director-
ships in other companies.
The above provisions are intended to stop the evasion
of the law relating to directors by a major shareholder
who can control the company without being on the board.
Such a person cannot, for example, get around the law
relating to directors’ loans by resigning temporarily
from the board in order to allow the company to make
him a loan. He would be covered because he would be a
‘shadow director’.Remuneration – generally
If a director is to receive remuneration, his contract of
service (if he is an employee, executive director (e.g.
sales director)) or the articles (in the case of a fee-paid
non-executive director) must provide for it. As regards
an executive director’s service contract, s 228 says that
the company must keep a copy of it, for at least one year
after it has expired, normally at the registered office, and
that this copy is to be open to the inspection of mem-
bers, who can now, under the 2006 Act, obtain copies as
well. While this may be of general interest, it is vital
where a member (or members) intends to try to remove
a director from the board before his term of office has
expired. A director who is removed in this way has a
right to sue for damages if he has a contract which has
still some time to run.
Members can look at the contract and see what their
act in removing the director might cost the company.
The notes to the accounts of the company must
disclose the salaries or fees of the directors and the chair-
man. This is not required in the ‘abbreviated’ accounts
which small companies may file with Companies House.Controlling directors’ pay
One of the major difficulties arising in connection with
directors’ pay at least in more recent times has been
the seemingly excessive payments made to directors in
terms of remuneration while in office and compensa-
tion packages at the end of what has not always been a179