The Directors are primarily responsible for the day to day running of the business of the company and the exercise of its powers.

Generally speaking, subject to the articles of association and certain matters which require shareholder approval, the Directors have full rights to exercise all powers of the company.

The board acts as the ‘governing body’ of the company and has a multifaceted role, being responsible for (amongst others):

  • setting strategy;
  • ensuring sufficient resources (personnel, financial or otherwise) are available to deliver and achieve the objectives;
  • monitoring and supporting the management team;
  • setting the company’s values, ethos and standards;
  • ensuring that stakeholder requirements are met;
  • compliance with fiduciary and statutory duties; and
  • corporate governance.

The three ‘hats’

It is not uncommon, especially in owner managed and smaller businesses, for the Directors of a company to also be Shareholders and Employees. For illustration, take for example ABC Limited:

ABC Limited is a private company limited by shares. It has two Directors (A and B) and two Shareholders (A and B) who each hold 50% of the share capital of the company. A is employed by the company and receives a salary (just like any other employee) as well as profits from the company by way of dividends. B is not employed by the company and only receives dividends.

In this example, A is wearing all three ‘hats’. He is a Director, a Shareholder and an Employee. B is only wearing two ‘hats’ as he is a Director, a Shareholder but not an Employee. This is a typical ownership and management structure.

It is important for Directors to distinguish between each ‘hat’ and the distinctive roles, responsibilities and priorities which are associated with it. Although, from a legal perspective, the roles are very different, they invariably overlap in practice which can cause confusion and issues.

  • Director ‘hat’:
  • Directors are responsible for the day to day running of the company’s business.
  • Statutory officers of the company and owe fiduciary and statutory duties.
  • Make decisions at board level.
  • Shareholder ‘hat’:
  • Shareholders are the owners (or investors) in all or part of the company.
  • Concerned with the return they are receiving (i.e. dividends), the risk of that return and capital growth.
  • Make decisions at shareholder level (i.e. general meetings/shareholder resolutions).
  • Employee ‘hat’:
  • Employed by the company just like any other employee.
  • Work within the business at an operational/managerial level.

How do Directors make decisions?

Key decisions are taken at board level. Generally, the Directors have the power to regulate their own board meetings as they see fit (i.e. frequency, agenda etc.). Any Director has the power to call a board meeting, however:

  • reasonable notice must be given to his fellow Directors; and
  • a quorum must present (i.e. the minimum number of Directors who must be present before the board may conduct any business).

Unless the articles of association say otherwise:

  • when making decisions each Director has one vote; and
  • decisions of the board are made by simple majority (i.e. more votes in favour than against).

The articles of association may provide for the appointment of a chairman to the board. The role of the chairman is primarily an ambassadorial and representative role. The chairman is usually chosen by the Directors and is, more common than not, carried out by a Non-executive Director. The chairman may, in circumstances where there is an equality of votes at board level (i.e. deadlock), have an additional casting vote.

For further help or advice, please contact Jonathan Oxley.

Please note this information is provided by way of example and may not be complete and is certainly not intended to constitute legal advice. You should take bespoke advice for your circumstances.

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