Can a Company be a Director of Another Company? Let’s Explore.

The intricate landscape of UK company directorships can be challenging to navigate. In this article, we’re diving deep into the roles, responsibilities, and regulations surrounding company and corporate directors. If you’re considering appointing a director or becoming one yourself, this guide will be helpful.

What is a Corporate Director?

A corporate director refers to a corporate entity being appointed as the director of a company, rather than an individual. Historically, companies could appoint corporate directors for a variety of reasons. However, with the ban on corporate directors introduced by the Small Business, Enterprise and Employment Act 2015, UK companies must now have at least one human director.

How Does One Become a Director of Another Company?

It’s simpler than you might think. UK company law states that almost anyone can be appointed as a director. However, when appointing a corporate director in the UK, certain conditions must be met such as:

• At Least One Human Director: UK companies must have at least one natural (human) director. This ensures that there’s always an identifiable individual responsible for the company’s actions.
• Specific Exceptions: The ban on corporate directors is not absolute. There are certain exceptions where corporate directors may be permitted, especially in larger corporate structures where they can demonstrate that the appointment would achieve a legitimate aim and that the corporate director is subject to law which requires equivalent transparency and accountability as that applied to UK individual directors.
• Details Submission: When appointing a corporate director, a company must provide the details of the corporate director to Companies House, including information about the legal entity, its registration number, where it’s registered, and its registered or principal office.
• A Guarantee: The corporate director must be a registered company itself, and it should be subject to rules that make directors’ details publicly available. This way, if there’s a need to trace back responsibility, there’s a chain of identifiable persons.
• The Articles of Association: The company’s articles of association must not prohibit the appointment of corporate directors. Some companies’ articles might have specific provisions regarding director appointments.
• No Previous Disqualifications: The corporate entity must not have any disqualifications or bans from acting as a director.
• Accountability: It’s crucial that any obligations, responsibilities, and liabilities that apply to human directors also apply to the corporate director.
• Dissolution and Insolvency: If a corporate director is dissolved or goes into liquidation, its appointment as a director would typically automatically cease.

The Use of Corporate Directors: Pros and Cons

While the use of corporate directors can streamline management of a company, the ban on corporate directors ensures transparency. On the positive side, corporate directorships offer a layer of separation between the individual running a company and the responsibilities of directorship. However, potential conflicts of interest and corporate transparency concerns led to their diminished use.

Director Must-Haves: Key Criteria

A director must meet certain statutory requirements. They cannot be an undischarged bankrupt unless they have court permission, and they must not be disqualified by court order under the Company Directors Disqualification Act 1986.

Disqualification: When Can’t You be a Director?

If a director becomes bankrupt or is involved in any criminal activity, they can be disqualified. Moreover, under the Companies Act 2006, they can also face disqualification for not maintaining accurate financial information or failing to send annual accounts to Companies House.

How Many Directors Should a Company Have?

Private limited companies in the UK must have at least one director, but there’s no upper limit. The ideal number often depends on the company’s size, needs, and the articles of association.

Is There an Age Limit for Company Directors?

The Companies Act 2006 states that private limited companies cannot appoint an under-age director, setting the minimum age at 16. However, there’s no upper age limit.

Understanding the Director’s Service Contract

A director’s service contract outlines the terms of their appointment, from roles and responsibilities to compensation. It ensures both the company and the director understand their mutual obligations.

Key Takeaways:

• Corporate directors refer to entities, not individuals.
• While appointing a corporate director is possible, at least one director must be a natural person.
• Criteria exist for who can and cannot be a company director.
• Company secretaries differ from directors, handling primarily administrative tasks.
• The Companies Act 2006 plays a pivotal role in director appointments.

Whether you’re a budding entrepreneur or a seasoned business owner, understanding the nuances of directorship is key to effective company formation and management.

FAQ

Q: Can a Company be a Director of Another Company?

A: Yes, a company can be appointed as a director of another company. This is known as a corporate directorship.

Q: What is the use of corporate directors?

A: Corporate directors are often used when a company wants to appoint another corporate body as a director, instead of an individual.

Q: Is there a specific requirement that a director must meet?

A: Yes, a director must be at least 16 years old and not disqualified from being a director.

Q: What does the term “disqualification” mean?

A: Disqualification refers to a legal restriction that prohibits an individual from acting as a director of a company. It can be imposed due to certain misconduct or insolvency.

Q: What is the role of company secretaries in relation to directors?