Directors are appointed to manage a company’s day-to-day operations. Their primary responsibilities include acting in the best interest of the company, exercising care and diligence, and avoiding conflicts of interest. Directors have a fiduciary duty to shareholders, meaning they must prioritise the company’s welfare over their personal interests. Additionally, they are responsible for ensuring the company’s compliance with relevant laws and regulations, including financial reporting, corporate governance, and statutory obligations.

The articles of association are a vital document that outlines how the company operates internally and third parties. This document sets out the rights and responsibilities of directors, shareholders, and other stakeholders. It typically covers important aspects like how directors are appointed and removed, how meetings are conducted, and the voting rights of shareholders. The articles must comply with the laws of the jurisdiction where the company is registered, and they can be changed as needed, usually with the approval of the shareholders. Another example of the effects of articles of associations on how a company operates are the “Objects” these are now often removed from the articles but in the past they were prevalent, whilst many may view them as simply setting out what the company aims to do they can also place restrictions on the directors as to what they can do with consequences if they are deemed as operating in breach of them.

Both directors and the articles of association must adhere to the law and regulations governing them. If they don’t, there can be serious consequences, including fines, disqualification of directors, and damage to the company’s reputation.

In summary, knowing the roles of directors and the importance of the articles of association is crucial for good corporate governance. Directors need to do their jobs diligently, while the articles serve as the foundational document guiding the company’s operations. Being familiar with these elements is essential for anyone involved in managing or advising a company.

If you have any questions regarding your position as a director, your company’s articles of association or company law, do not hesitate to take legal advice. As we highlight above, the consequences of it going wrong can be serious.

Please contact our expert Corporate Commercial Law team if you require further advice on the above.

Article written by Commercial Assistant Lara Kljajic.

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A director’s powers and authority stems from legislation, the Companies Act 2006 being the most relevant legislation, and the articles of association of the company in question (see our previous blog post on articles of association here) which acts as the company’s constitution.

There are areas of the articles of association that need consideration where there is only one director of the company.

One area may be how a company executes documents/binds itself.

Another involves decision making. A board meeting is often required for decisions and authorisations relating to key parts of a company’s business such as borrowing money. A board meeting involves more than one person, and a quorum is often defined in the articles as two directors or more.

The model articles, which are the template that many companies do not alter when they are incorporated, requires a quorum of two directors but also allows for sole directors to make decisions – usually via sole director resolutions. However, the case of Hashmi v Lorimer-Wing (also known as Re Fore Fitness Investments Holdings Ltd) relating to whether a sole director had the power or authority on their own as the sole director led to lenders and banks requiring a change of articles before they would lend to sole director companies as it would affect their ability to recover monies that they have lent.  

The subsequent case of Re Active Wear Limited (in Administration) reversed the decision of the previous case but bearing in mind that interpretations of the law can change, it is worth checking your articles of association if you are a sole director as the contents could be written for companies with more than one director.

Updating and ensuring the articles reflect the structure you have in place rather than a hypothetical one can help your company continue to operate smoothly (and is most certainly worth doing if you are looking to sell the company at some point in the future).

The corporate / commercial department at BTTJ advises businesses across all sectors, from long-established companies to enterprises that are just starting up.  Our team consists of commercial and corporate law solicitors with extensive expertise – and the experience required to adopt the right strategy in every situation. Please contact us for further advice.

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The accuracy requirements of this Act include that registered office addresses must be an ‘appropriate address’ at all times. Many companies utilise a registered office address that is not their trading address (it is often, for example, their accountants). The Act defines an appropriate address as one where:

• any documents sent to the address should be expected to come to the attention of a person acting on behalf of the company; and
• any documents sent to that address can be recorded by an acknowledgement of delivery.

It has been the case previously that companies could provide a PO box or an address such as a paid office for their registered office address. This meant that documentation sent to the address or served at the address would not necessarily be brought to the attention of the company or it’s directors. As a result of this, when chasing payment for unpaid bills, it would be standard practice to not send preaction letters to the registered office address as they would be assumed not to have been read by the directors of the company.

The consequences of not having an appropriate address are that the company could be struck off.  If the address is identified by Companies House as not appropriate, they will change the address to a default address at Companies House providing the company with 28 days to change the address to an appropriate address or Companies House will begin the striking off process.

The act also requires a “registered email address” to be provided to Companies House, this address will not be shown on the public record, but it must be an appropriate email address. An email address is an “appropriate email address” if, in the ordinary course of events, emails sent to it by the registrar would be expected to come to the attention of a person acting on behalf of the company.

For further advice or assistance on this matter, please contact our expert Corporate Commercial team who will be happy to assist.

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A CIC can be company limited by shares, both private and public, or a company limited by guarantee, it cannot change from one set-up to the other. A CIC of either type must include certain regulations/points in their constitutional documents (or “Articles of Association”).

Part of the requirements to be complied with is that that the CIC appoints an “Asset Locked Body”, although this can later be appointed, an Asset Locked Body is either a charity or another CIC to whom the assets of the CIC will be passed to should it be wound up, and in the case of insolvency, wound up after the creditors be satisfied. If the Asset Locked Body owns shares in the CIC then they may be able to receive dividends. The intention behind this concept is that the CIC’s success or its assets at least (in the event it is closed) will be paid forward into projects for the community/social development.

A political party may not be a CIC.

CICs are regulated under the CAICE – Companies (Audit, Investigations and Community Enterprise) Act 2004 which also establishes a regulator, which is a separate department with Companies House, a company can either be incorporated as a CIC or  incorporated as a ordinary company first and then apply for CIC status with this regulator, this process takes roughly 10-15 working days and involves changing the name of the company to reflect its CIC status.

A CIC, like many other companies, can be organised as having a small number of members that are also directors or have a board of directors and a larger number of members.

CICs are required to deliver to the Registrar of Companies an annual community interest company report with its annual accounts. This report records their activities for that year including any details on assets transferred for less than market value, dividends paid and the remuneration of directors.

CICs are still covered by company law so in addition to answering to the regulator and the CAICE Companies (Audit, Investigations and Community Enterprise), they will be subject to the Companies Act 2006.

The concept of a CIC is to create a type of entity that can be ran for the benefit of a community and not solely for profit but include some of the benefits (such as limiting liability) that a company can provide.

If you are a CIC or are thinking about starting setting one up and need legal advice, please get in touch with our Commercial and Corporate Law Solicitors who can offer clear and cost-effective expert advice.

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A result of this legislation is that Companies House will have greater powers to query information, scrutinising for incorrect information and being able to reject information that is in correct or inconsistent.

There will be stronger checks for company names that are misleading to the public.

There will be changes to the requirements for registered information such as office addresses and supplying a registered email address.

There is a requirement on incorporation or annually to confirm that the company is formed for a lawful purpose and that future activities will be lawful.

Other steps are to be taken to “clean up” the register of inaccurate information and allow the inclusion of annotations to allow users to see if information may have potential issues.

Powers and frameworks to strengthen the fight against money laundering and to make sharing information more easy regarding suspected money laundering, fraud and other economic crimes

The act creates stricter rules and requirements on directors and persons of significant control as well as increase the tools available to combat money laundering and other forms of economic crime.

For further advice on Corporate / Commercial Law please contact us, our expert team advises businesses across all sectors, from long-established companies to enterprises that are just starting up.  Our team consists of commercial and corporate law solicitors with extensive expertise.

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“Dear Father Christmas,

I write as you are a supplier of toys, presents and (where necessary) coal to my family.

I will need a report into your environmental policies especially sustainability, how you intend to lower your use of coal (whether that’s using the coal to power your elves’ workshop or for the naughty list) in the long run.

Your carbon footprint is my main concern when all is said and done.

As you know the intention is, by 2030, have the country at net zero.

If you can’t report on this then you cannot be my hero.

Yours sincerely

Joseph B Loggs”

Father Christmas sat there scratching his head in a bit of a flummox.  “Net zero, environmental reporting – What is this?” he asked, even the Elves’ book keepers did not know!

He picked up the phone to his helpful lawyer from days past. “Please help me and fast”.

“Of course Father Christmas, although your operation may not be massive” replied the lawyer “with ESG reporting your involvement may not be passive. You may get questions and enquiries from others, please come to my office and I will assist.” He continued.

As we proceed through the festive period and into the new year, businesses may find themselves being asked by those they supply to about their policies on environmental and social issues whether that be sustainability, reducing your carbon footprint or how you have sourced your materials. There are requirements on many businesses to report on these topics as part of their financial reporting.

If you are at any time not sure what you could or should do (or have in place) please contact our expert Corporate Commercial team at BTTJ who will be happy to discuss your business and how you can look to ensure that going into the new year you can provide answers to such questions.

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The general position in respect of any restriction on trade is that it will be unenforceable.

However, in employment and commercial law, there is an exception to this rule. In certain circumstances clauses restricting a person’s or a company’s actions following the end of a contract may be enforceable. However, in order to obtain the benefit of such a restriction, it must:

a) Be a genuine attempt to protect a legitimate business interest, and;

b) Must go no further than is necessary to obtain that end.

Unfortunately, there is no definitive rule as to what is enforceable and what is not, and each case will turn on its own facts; what is reasonable for the managing director will not necessarily be the same for say the cleaner or a person on the shop floor.

What does this mean in Employment Law terms? In practice it means that restrictions that are limited in their scope and duration are much more likely to be enforceable than those that are widely drafted. However, consideration should be given as to what exactly it is that the employer is seeking to protect in each case and the best way to go about doing it. Restrictions should consider:

• Being for a short specific period of time, i.e. 3 or 6 months
• Being geographically restricted to a small vulnerable area
• Being restricted only to those customers who the employee has dealt with in the last 6 or 12 months
• Whether they wish to stop the employee soliciting its clients business, or prevent them dealing with them at all
• Who or what the employee actually wants to protect: if it only wants to protect its workforce then a non-deal clause is unlikely to be helpful.

In the recent case of Coppage and another v Safetynet Security Ltd [2013] EWCA Civ 1176 the Court of Appeal has upheld that a non-solicitation covenant on a director who was prevented from dealing with any customers of his former employer for a period of 6 months. The enforceability was challenged on the basis that it related to all clients of the Company which he had worked with, and not simply those he had contact with in a prescribed period. The Court rejected that appeal, and upheld the covenant despite its wide drafting. In the circumstances it was appropriate given the individual’s seniority in the business.

In some instances, whilst restrictions may be wide, some employers will still include them as a deterrent to employees seeking to damage their business after they have left. However, even if this is the case care should be taken to ensure that they appear like they may be reasonable if they are to have any effect.

Therefore careful consideration should be given as to whether and what level of restrictions should be included in any contract. It is an ideal opportunity to protect your business and its assets, and if they are specific and well drafted then they are more likely to be enforceable, allowing an employer to sue for damages, or to obtain an injunction against further action by an employee where they are breached. However, an overly wide, poorly drafted restriction is unlikely to be enforceable.

In the event that you are drafting employment contracts, thinking of reviewing contracts for employees, or you are a senior employee subject to a restrictive covenant and thinking about leaving your employment then it is worth taking advice upon your position as soon as possible with a view to adequately understanding and protecting your position.

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