Natural Directors
Every director and company secretary of a limited company in the UK should be aware of important changes to the appointment of directors which come into effect on 1 October 2008 with the next stage of the implementation of the Companies Act 2006 ("CA 2006").
The main change is that any company incorporated on or after 9 November 2006 must have at least one "natural person" (i.e. living individual) as a director by 1 October 2008 if they have not already done so. So if one of your companies falls into this category then you need to move fast to select a natural person to join the board of directors. For companies being incorporated from 1 October 2008 there must be at least one natural director or else the registration will be refused by Companies House. For companies incorporated before 9 November 2006 there is a transitional period so that they require to appoint a "natural person" to the board by 1 October 2010.
These provisions effectively bring to an end the position where a company can have all its directors as corporate entities. This is most often seen in trustee companies or joint venture companies because it is convenient to appoint a corporate director, which itself has a number of natural directors, so that any one of those natural directors can attend board meetings and there is no delay in conducting the affairs of the company if a natural director is on holiday or ill.
The Companies Act 2006 provides that if a company is in breach of the requirement to have at least one natural director then the Secretary of State can direct the company to rectify the situation. The time period for complying is not less than one month but not more than three months after the date on which the direction is given. Failure to comply with any such direction is an offence subject to a fine and or criminal liability on the offending company and each of its officers.
Strangely, the provisions whereby a director can request that a service address (rather than his/her residential address) is used on the company's register of directors (and thus on the annual return and public registers) do not come into force until 1 October 2009. Until then, the natural director's residential address must be given. When the service address provisions come into force, a director will still require to give Companies House his/her residential address but this is kept on a separate register - for more details on this, watch this space…
So why did the government take away the ability to have companies in which all the directors are non-natural persons? Will this have any real effect in making the management and corporate governance of UK companies better than they were prior to 1 October 2008? Or will we find junior members of staff appointed as nominees, without being aware of the responsibilities or potential liabilities of directorship? This change is likely to have no real impact on the management of companies, but is certainly further evidence of the blame culture in the UK which demands to be able to identify an individual to take the blame for any health and safety accidents or bad economic performance.
1 October 2008 is also a noteworthy date because three more of the new directors' duties come into force, namely:
-
the duty to avoid conflicts of interest (Section 175 of CA 2006);
-
the duty not to accept benefits from third parties (Section 176 of CA 2006); and
-
the duty to declare any interest in a proposed transaction or arrangement with the company (Section 177 of CA 2006).
For further information on these and the other new duties on directors please click here to see our briefing on directors duties.
Another less noteworthy change to come into effect on 1 October 2008 is that all directors must be at least 16 years old. If a person under 16 is appointed as a director before this provision comes into force then he/she will cease to be a director from 1 October 2008. From experience, we do not expect too many of our clients to be affected by this change!
For further information please contact: Scott Kerr
Complete the details below to send a link to this page to a friend.