A company should be run by its board of directors in accordance with a corporate governance structure established within the company.
Directors should meet on a regular basis and agree how to resolve issues arising within the company, as well as discussing more medium-term and longer-term strategy which may support the company’s financial growth or otherwise in accordance with the company’s objectives, constitution and/or any shareholder’s agreement in place.
However,
- for smaller companies, the management structure is not as clear, and we often encounter – particularly with older companies – a more informal approach to management;
- for family-run companies, there may be a senior patriarch or matriarch who makes or is required to endorse a majority of the material decisions made on behalf of the company.
- for younger companies, there may also be a complete lack of structure with each of the owner/managers performing their own role and there being little financial control and potentially a larger reliance on the company’s accountants.
However, as a company grows, where it faces a risk, or the directors & shareholders fall into a dispute then the need for an established management structure becomes extremely important.
Executive directors
Executive directors by their very definition are usually responsible for the day-to-day management of the company and have the legal power (subject to internal restraints to bind the company to contracts and commitments).
Whilst not a legal requirement, executive directors may meet to discuss any part of the company’s business on a regular (or irregular) basis. Read here for more about director’s decision-making and board meetings.
However, it is not unusual for attendees at such meetings (if they are convened) or otherwise to also make corporate decisions or commit the company in circumstances where conventionally only a director is empowered to do this. Such individuals are often referred to as either de facto directors or shadow directors.
Shareholders
Shareholders own the company. Their involvement in the company (for most companies) is principally for the purpose of maximising the return made on their investment. This can be by way of regular dividends paid or a growth in the market value of their shareholding.
For SME companies, shareholders may be a lot closer to the company’s affairs and they do have a role in managing structural aspects, certain aspects of financial investment and the control of the company’s directors. Only shareholders can remove a director.
However, shareholders are not entirely free of any obligations when involved in any decision-making in respect of the company, and as shareholders if they overstep the mark and begin acting as a director then (despite not having the badge) they will be equally liable.
Shareholders also owe a duty to other shareholder of the company (particularly where they also act as directors) not to prejudice the other shareholders interests.
Insolvency
Where a company is placed into insolvency proceedings, particularly where the company is placed into liquidation, a director loses his/her authority and control of the company’s affairs.
From the date of insolvency, or the date of his/her/their appointment, the administrator or liquidator (often the Official Receiver) is responsible for managing the company.
The director does remain subject to his/her fiduciary duties to the company and cannot use their former position to manipulate the company’s affairs (even if in insolvency).
Shareholders agreement
A shareholders agreement is a private agreement between shareholders (often old and new) which may govern how the company is run and how directors are removed, their rights of management and aspects of control of the directors.
A shareholders agreement will not be publicly available to review at Companies House. Where a company has a shareholders agreement, any dispute arising from who runs the company may be more easily answered by this agreement (entered into some time before the dispute arose).
At Francis Wilks & Jones we have comprehensive involvement with disputes over management or how to control company directors and owner/managers when the business is not going in the intended direction. Please call any member of our team for your consultation today. Alternatively email us with your enquiry and we will call you back at a time convenient for you.
