(of a closely held company)

A director of a closely held company (one where there is five or less shareholders) has effective control over the management and the constitutional affairs of the company. There are a number of responsibilities and duties of directors of such companies in light of the Companies Act 1993 that such directors should be aware of.

General Information

• A director must not act, or agree to the company acting, in a manner inconsistent with the Companies Act 1993 or the company constitution. The Act imposes numerous statutory responsibilities on directors, and failure to discharge any such responsibility constitutes an offence under the Act.

• A director is under a duty to act in good faith and in the best interests of the company. He/she must exercise skill, care and diligence.

• Directors powers must be exercised for a proper purpose.

• Directors must comply with the Companies Act 1993 and the company’s constitution.

• A director must not engage in reckless trading – i.e. managing the company’s business in a manner likely to create a substantial risk of serious loss to the company’s creditors.

• The Board must keep minutes and records of all resolutions and proceedings of meetings of the company and Board.

• The company must keep a separate share register.

• Directors must disclose to shareholders any transactions, which they have a personal interest in.

• It is the Boards responsibility to keep accounts and ensure the Registrar of Companies receives an Annual Return.

• The Board of directors of a company has all powers necessary for managing the business and affairs of the company.

• Unless otherwise stipulated by the company’s constitution a quorum is represented by a majority of directors (or shareholders for a meeting of shareholders).

Director Ceases to Hold Office:

A director ceases to hold office if theyResign, by giving written notice to the company

• Are removed from office, by a voting majority
• Become disqualified from being a director
• Otherwise vacate office in accordance with the company’s constitution

NOTE: a director remains liable for acts of omissions and decisions made whilst that person was a director, even after vacation of office.

Shareholder Meetings

• The Board must call an annual shareholder meeting once in each calendar year, not later than six months after the company’s balance date, and later than 15 months after the previous annual meeting. The first AGM must be called within 18 months of registration.

• A resolution signed by not less than 75% of shareholders may be produced in lieu of a meeting.

A share confers on the holder the right to vote at a meeting of the company on any resolution, and the right to an equal share in dividends.

Examples of Board resolutions needing only majority support (i.e. 51% or greater):
• Appointment and removal of directors (unless a special majority is required by the company’s constitution)
• Share issues
• Calls on shares

Examples of special resolutions (i.e. at lease 75%):
• Redemption of company’s own shares
• Alteration of shareholders rights

Specific Information

• Shares may be issued at any time by the Board if the directors have voted in favour of such an issue and have signed a resolution confirming their approval and a certificate stating the terms of the issue and the director’s opinion that the terms are fair to existing shareholders. Notification must be given to the Registrar of Companies within 10 working days of the issue.

• Directors must sign a solvency certificate before any distributions may be made from the company. A distribution includes dividends, shareholders discounts, share acquisitions, share redemptions, and financial assistance for the purchase of shares etc. Failure to apply the solvency test properly may result in personal liability on the part of the director.