How are the chairman and managing director chosen and does a company have to have them?

It is sometimes thought that the members choose the managing director and chairman. This is not the case, though it does sometimes happen in practice. In theory, at least, and subject to the articles, the members choose the directors, then the directors themselves choose the managing director and chairman.

A company can only have a managing director if the articles permit it. They usually do and Reg. 84 of Table A specifically provides for it. The precise role and powers of the managing director are a matter for the board as a whole. Occasionally a board will decide to have two or more joint managing directors. Similarly the appointment of chairman depends on the articles. Reg. 91 of Table A states 'The directors may appoint one of their number to be chairman of the board of directors and may at any time remove him from that office.' The new model articles have the same effect.

It is not compulsory for a company to have a managing director or chairman, though most do. Sometimes the roles are combined, though this is frowned upon by the Combined Code, which is for the guidance of listed companies. Some directors operate with equal powers, generally in small companies where all the directors know each other well (and are perhaps related) and trust each other fully. Some directors prefer to operate without a chairman (and therefore without a casting vote), instead operating on a consensual basis. Some boards operate by rotating the chairman for each meeting or by each director holding the position for one month in turn, or some such arrangement.

Does a managing director have any extra powers recognized by law?

In general, the managing director's powers are those given to him by the board. The precise arrangements may vary from company to company and case to case. There is just one power recognized by case law: a managing director has implied authority to bind the company in all contracts made in the ordinary course of business.

How can I find out if a particular person is banned from being a company director?

A register of disqualification orders is maintained by BIS. It can be viewed at Companies House and can be accessed on-line.

In practice how does a company operate as a director of another company?

Its directors exercise the powers. They come to collective decisions about what the company will do, or they make a collective decision that one of their number will act for them. One director represents the company at board meetings and votes. Any formal signatures (such as attesting the use of the company seal) are made by a director and stated to be made on behalf of the company.

Is there a prescribed minimum number of directors and is a sole director permitted?

It is a legal requirement that a public company registered on or after 1st November 1929 has at least two directors and this cannot be overruled by the articles.

A private company can have a sole director if it is permitted by its articles. Table A does not permit it but the new model articles for private companies do. Articles may of course fix any permitted number as the minimum in a public or private company.

Is there a maximum number of directors permitted?

There is no maximum number unless one is imposed by the articles. No maximum number is imposed by Table A or the new model articles.

The number of directors has dropped below the number needed for a quorum. What can be done?

It depends on the articles. Reg. 90 of Table A says that the remaining directors or director may only act for the purpose of filling the vacancies or of calling a general meeting. The general meeting can of course be used for the purpose of the members appointing additional directors. These powers may not be used if there have never been sufficient directors to form a quorum. If there are insufficient directors in the United Kingdom to form a quorum, any member can convene a general meeting. This can be used to appoint new directors and it is a step that can be taken if there are no directors at all.

Article 11 of the new model articles for private companies states (in part):

'(3) If the total number of directors for the time being is less than the quorum required, the directors must not take any decision other than a decision -

to appoint further directors, or

to call a general meeting so as to enable the members to appoint further directors.'

Finally, it should be noted that the court has the power to direct that a general meeting be held.

Are all directors officers of the company?

Yes they are, and this includes any de facto directors and shadow directors. Non-executive directors are in the same position as executive directors. Section 1261 of the Act defines an officer of the company in the following terms: 'in relation to a body corporate, includes a director, a manager, a secretary or, where the affairs of a body are managed by its members, a member'.

Officers of the company have special responsibilities for trying to ensure that the company complies with company law.

 
< Prev   CONTENTS   Next >