Every limited company must have at least one company director. At least one of the directors must be an actual person (as opposed to another company). Directors can also be shareholders or employees, but they do not need to be.
The first directors of a company are appointed by the shareholders. After that, any changes or additions to directors will be made via the process set out in the Articles of Association and must be reported to Companies House.
Directors are appointed to manage the business by making strategic and operational decisions for the business and ensuring that the company meets its legal obligations.
The basic rule is that the directors should act together as a board but typically the board may also delegate certain powers to individual directors or to a committee of the board, in order to make the business run smoothly.
Directors must ensure that they:
act within the powers and for the purposes set out in the company’s constitutional documents;
act in good faith to promote the success of the company;
exercise independent judgment and take reasonable care, skill and diligence;
avoid situations where there is a conflict of interest; and
not accept benefits from third parties and declare any interests in proposed or existing transactions.
Directors have responsibility for ensuring that the company complies with the law. There is no requirement to appoint a company secretary, but if one is appointed then they share responsibility for the legal requirements with the directors.
The main ongoing legal requirements of a company are:
filing legally required information with Companies House;
maintaining the company's registered office;
keeping the company's statutory books, records and key legal documents;
organising and recording board meetings and general meetings of the shareholders; and
ensuring the required company details are disclosed on premises, stationery and the company's website.
There are a whole host of other legal requirements to consider including confidentiality, employment, health and safety, tax and data protection as well as more administrative tasks like managing buildings and arranging insurance.
Directors Service Agreement
A director’s service agreement is not a legal requirement but it can be useful to help set out the rights and obligations that may arise where a director is also an employee and/or a shareholder. It can help to appropriately and effectively disentangle the relationship and provide protection for both parties where a dispute or disagreement arises.
Also, a director will have access to the company’s most valuable and confidential information including source code, business plan, strategy, employee data and client list. A director’s service agreement can help to protect the confidentiality of such information by including non-compete clauses so they can’t go and work for a competitor immediately after they go, other restrictive obligations including stopping them from taking the company client list with them and disclosing any confidential information.