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Business Legal Advice UK: New Director Appointments

Updated: Jun 28

Business Legal Advice UK: New Director Appointments

As businesses grow and evolve, they may wish to appoint new directors to their boards to secure and reward key staff members or bring in new contacts or skills from outside the company. Stating that appointing new directors is not quite as straightforward as companies may think, commercial law specialist Richard Turney of Rose & Rose Solicitors in London stressed the importance of getting the process of new director appointments right.

Explaining that failing to check a potential new director’s eligibility for their proposed new role and subsequently ensuring that they are validly appointed could have potentially serious implications like, for instance, liability for contractual arrangements made without regard for a company’s best interests, he further stressed that to ensure such appointments are valid and in a company’s best interests, it is essential to review the 2006 Companies Act, the company’s articles of association and pertinent common law.

Who Can Be Appointed as a Director?

The 2006 Companies Act sets out several fundamental requirements that must be satisfied before someone can be appointed to a company’s board.

Companies considering such an appointment should therefore ensure that their potential new director:

•           Is more than 16 years old;

•           Is not currently an undischarged bankrupt;

•           Has not been declared ineligible to act as a director; and

•           Is not prohibited under their company’s articles of association from acting as one of their directors.

On a more practical level, questions to ask any potential new member of a company’s board should, for example, include whether they already hold other directorships that could conflict with their potential new role. If your proposed new director is, for instance, already sitting on a competitor’s board, their ability to consistently act in your company’s best interests may be impaired.

New Director Appointment Procedure

When accompany is incorporated, it adopts certain rules governing the way it can operate. Acting as safeguards, these rules are commonly known as a company’s articles of association.

It is possible that these rules will include express provisions concerning the appointment of new directors. It is imperative to carefully review and comply with these provisions. In most cases, current directors on a board will be empowered to appoint new directors at board meetings. Alternatively, new directors may be appointed via a resolution of company shareholders. Appointments are usually dealt with by the present board of directors at a board meeting and written minutes of said meeting must be prepared to record that resolution. A newly appointed director must be ready to sign a statement indicating their consent to act on behalf of the company as a director and Companies House must be notified of the appointment via use of a prescribed form.

The Impact of Defective Appointments

According to the Companies Act provisions, the acts of a director could be considered binding on accompany even if said director’s appointment is found to be invalid or incorrect. If relevant procedures and checks were not undertaken, this could, of course, cause problems for the company. If it is found that a newly appointed director was previously declared ineligible to act as accompany director due to, for example, a finding of fraud, their appointment would be invalid, but any contracts they entered into would most likely still be regarded as binding. If said individual continued to act in ways serving their own interests rather than those of the company, the company could incur significant reputational and financial damage.

Specialist Legal Advice

As commercial law specialists, we can provide you with detailed advice designed to ensure your company and its directors are fully aware of the correct procedures and implications of new director appointments. Especially ensuring that all possible steps to ensure your company’s interests are protected are taken, we can also make sure that such appointments are both properly documented and correctly filed with Companies House while ensuring your company’s full compliance with the procedures and law in this area.

Please contact us on 020 8974 7490 or by email: info@roselegal.co.uk for more detailed advice on the above.

Please Note: This article does not constitute professional or legal advice and is only for general information. It is possible that laws may have been changed since publication of this article.