A limited company has officers as well as members/shareholders. The officers of a company are:
· a director (or directors)
· a company secretary.
The power to make decisions on behalf of the company is shared between the directors and the members. Some powers can only be exercised by the members, including the power to change the company’s articles of association (or ‘articles’). The articles basically set out how the company is going to be run and governed. We will look at them in more detail in a future post. However, many company management decisions will be taken by the company directors without the need to refer to the shareholders.
When a company is first incorporated, the details of the director (or directors) is notified to the Registrar of Companies on form IN01 (which we have mentioned in a previous post in this series). Further directors may be appointed later. How these directors are appointed is set out in the articles. The power to appoint directors may be given to the members or perhaps to the board of directors.
When a person is appointed a director, their rights, duties, and obligations are defined, first and foremost, by:
· the articles
· legislation (including the Companies Act 2006)
· common law
There are different kinds of company director. For example:
· executive directors
· non-executive directors (NEDs)
· managing directors
Directors who sit on the board of directors have a fiduciary duty – one of faith, trust, and confidence - to the company and must act in the best interests of the company. Executive directors sit on the board of a company and have management responsibilities. Essentially, they have ‘executive’ responsibility for the running of the company. A non-executive director, on the other hand, is a member of the board who does not have responsibility for the day-to-day management and running of the company. A managing director is a director of a company, usually a senior executive, who is in control of the management of the company, or the head of a particular department or unit within the company.
Company directors are officers of the company. As such, they are officeholders. Therefore, they are not automatically employees of the company and, of course, they have a fiduciary duty to the company. Essentially, a company director only has any right to be paid (remunerated) if they have a contractual right to payment. One example of this contractual right would be through the company and the director to enter into a service contract. Usually, the company articles will contain provision for remunerating a company director.
Good collocation – combination of words in a way that is appropriate to a native speaker – is essential in legal English. Look at the list of verbs in section A below and the list of nouns in section B. How many good collocations can you make using a verb from A with a noun/noun phrase from section B? [We offer suggestions in the Answer Key, below]
Section A (Verbs)
To enter into
Section B (Nouns)
a fiduciary duty
a service contract
a company director
ANSWER KEY [Suggested]
to appoint – a company director
to run – a company
to incorporate – a company
to remunerate – a company director
to exercise – a power/a right/a responsibility
to enter into – a service contract
to have – a right/a responsibility/a power/a fiduciary duty
Note: This material is intended for educational and study purposes only. It is not intended to be legal advice. If you need legal advice, you should consult a lawyer or other appropriate legal advisor
© Cambridge Legal English Academy 2021