Role of Directors

Shareholders and Directors

There is considerable flexibility as to the relationship between the board of directors, the management, the shareholders and the company, which may be provided. They may or may not be a partial or complete overlap of personnel.

The company’s powers are delegated to the directors by the shareholders under default provisions/ standard articles of association. The provisions delegate full management and control of the company’s affairs to the board of directors, with limited exceptions. Other provision, with a greater reservation of powers to the shareholders, could be provided if so desired.

Although the shareholder’s powers are pre-eminent, they may not set aside transactions validly entered by directors.  They may not, without amending the constitution, undertake the functions which have been delegated to the directors.  The shareholders’ preeminent position is emphasised by the Companies Act right granted to the majority of the shareholders to remove a director.

The board may consist of non-executive directors only, executive directors only or a combination.The directors may delegate their powers to a managing director, who is a director. It may delegate some or most powers to a chief executive, and to other executives who may or may not be directors at all. Every company must have a secretary.

A secretary may also be a director, but a sole director may not also be the secretary.


The Board of Directors

The day to day management and control of companies is vested in the board of directors under default company law and standard articles association. The board of directors is responsible to the shareholders for the management of the company.

The board of directors is the body which companies law designates with most functions of managing the business of the company. It is the executive body. The shareholders have the residual power.

The shareholders usually appoint the directors. Company law provides for a type of democracy, where the shareholders elect the board of directors to manage the company on behalf of all shareholders. Voting rights are proportionate to shareholding, rather than one vote per shareholder.

In the case of companies limited by guarantee or non-trading companies, the directors may be labelled a board of management, committee, or equivalent title.  The basic principles of the Companies Act apply to them, in the same way as they apply to the board of directors. The particular constitution will reflect the variation in role and title.


The Requirement for Directors

Historically, company law provided there must be at least two directors.  The Companies Act 2014, provides that there may be a single director company.

The directors meet at board meetings or in less formal settings. They act collectively, through decisions made at meetings. Generally, they will act by consensus. They may act by the decision of the majority. Aside from the board of directors, who act as a body, individual directors may be given particular powers and authority.

The director holds an “office,” which refers to the role, function and position conferred by the company’s constitution and by law. An individual occupies this office. The director, as an officer of the company, holds a position which carries statutory rights and obligations in relation to the company.  By being holding that office, the director is entitled to exercise those powers.

Directors may be full-time (or “executive”) directors or part-time directors.  Executive directors may also be employees.  Their relationship with the company will be determined by their rights and obligations as directors, and also by the terms of their employment contracts.

Non-executive directors are more commonly found in larger scale companies, where they play a supervisory role, rather than a managerial role. They may be paid director’s fees or emoluments.  They are not usually employees of the company. Larger scale companies may have a combination of executive and non-executive directors.


Directors’ Role

The directors may be the main or only shareholders. This is particularly common in the case of a small private company, which operates a “family” business. In this case, the directors may be similar to partners.

In other cases,  there may be a principal or sole shareholder (who may have founded the business), who is a director, with other directors who participate in the business with or without a small shareholding.

Commonly, in small owner managed companies, the second director may be a family member or nominee, who does not participate in the company or in its management.  This is very risky from that person’s perspective. He may be nonetheless liable for negligence and breach of duty, notwithstanding and indeed because of his non-engagement with the company’s affairs.

In larger scale companies, the shareholders and directors are likely to be distinct. This permits the separation of management and ownership. The shareholders may be investors while the directors either manage or supervise the management of the company’s business.


Duties of Directors

The director’s duties are owed to the company.  They are not owed to individual shareholders.  There may be particular circumstances and relationships in which directors may undertake or be deemed to have undertaken duties to shareholders, but this will rarely be the case.

The role of a director should not be undertaken lightly. There is a risk of personal liability, particularly if the company later becomes insolvent.

Directors may be made personally liable for fraudulent or reckless trading.  There is a range of other situations in which they may be made liable for the company’s debts for non-compliance with their duties.

Directors can be restricted or disqualified from acting as directors under certain circumstances. This limits or prevents them and being involved in companies as directors for a period. Shadow directors may be restricted or disqualified. Restricted or disqualified persons must not act as directors.


Appointment of Directors

The first directors are named in the documents filed on the incorporation of the company.  The method of appointment of directors is set out in the constitution/ articles of association.  The default position is that the directors are appointed by the members at a general meeting. Directors may be appointed for a fixed term or indefinitely. See the section on the appointment of directors.

Certain persons are ineligible to be appointed directors. Others may be restricted by court order, so that they may not be a director unless the company has a minimum capital. An eligibility qualification, such as the holding of shares may apply under the company’s constitution or otherwise.

Unless certain conditions are satisfied, a company must have an EEA resident director.  An application may be made to the CRO for certification of the exemptions from the requirement for an EEA director.  In the event of the CRO refusing the application, there is an appeal to the Minister.  The Minister may confirm the decision or annul it.

The company must notify the appointment and cessation of appointment of directors to the CRO within 14 days. If a person ceases to be a director and to his knowledge, there is no director resident in the EEA, he must notify the CRO within that time.


Shadow Directors and De Facto Directors

Many of the duties and obligations that apply to directors, also apply to shadow directors and de facto directors. They are the subject to the statutory duties of directors.They can be disqualified and restricted, in the same way as directors. There are higher levels of sanctions applicable to persons who act as shadow directors or de facto directors, while disqualified or restricted.

A person may be a “shadow director” if the directors of the company are accustomed to act in accordance with his directions or instructions. A shadow director is effectively a  director.  His actual position and relationship are such that he directs and control the company as if he was a director or the managing director.

The registered directors may have surrendered their discretion to a shadow director or they may act as his nominee.  The courts will look at the true effective position, in order to determine whether a person is a shadow director.

A de facto director is a person who occupies the position of director of a company, but who has not been formally appointed as such. Such a person is treated, as a director of the company for most purposes.  A person shall not be a de facto director of a company by reason only of the fact that he or she gives advice in a professional capacity to the company or any of its directors.


References and Sources

Primary References

 

Companies Act 2014 (Irish Statute Book)

Companies Act 2014: An Annotation (2015) Conroy

Law of Companies 4th Ed.  (2016)  Ch.14   Courtney

Keane on Company Law 5th Ed. (2016) Ch.27 Hutchinson

Other Irish Sources

Tables of Origins & Destinations Companies Act 2014 (2016) Bloomsbury

Introduction to Irish Company Law    4th Ed. (2015) Callanan

Bloomsbury’s Guide to the Companies Act 2015      Courtney & Ors

Company Law in Ireland 2nd Ed. (2015) Thuillier

Pre-2014 Legislation Editions

Modern Irish Company Law   2nd Ed. (2001) Ellis

Cases & Materials Company Law 2nd Ed. (1998) Forde

Company Law 4th Ed. (2008)  Forde & Kennedy

Corporations & Partnerships in Ireland (2010) Lynch-Fannon & Cuddihy

Companies Acts 1963-2012   (2012)  MacCann & Courtney

Constitutional Rights of Companies   (2007)  O’Neill

Court Applications Under the Companies Act (2013) Samad

Shorter Guides

Company Law – Nutshell 3rd Ed. (2013) McConville

Questions & Answers on Company Law (2008)        McGrath, N & Murphy

Make That Grade Irish Company Law 5th Ed. (2015) Murphy

Company Law BELR Series (2015)   O’Mahony

UK Sources

Companies Act 2006 (UK) (Legilsation.gov.uk)

Statute books Blackstone’s statutes on company law (OUP)

Gower Principles of Modern Company Law 10th Ed. (2016) P. and S. Worthington

Company Law in Context 2nd Ed. (2012) D Kershaw

Company Law (9th Ed.) OUP (2016) J Lowry and A Dignam

Cases and Materials in Company law 11th Ed (2016) Sealy and Worthington

 

UK Practitioners Services

Tolley’s Company Law Handbook

Palmer’s Company Law