A guide to appointing a director (including a non-executive director)

Under Irish law, there’s no difference in approach for the appointment of an executive or a non-executive director (NED).

So you can use the same approach to appoint, or remove, each type.

In a typical business, the board of directors is responsible for operational decision-making, with the shareholders taking a back seat.

Given that a company operates for the benefit of shareholders, this can create tension if the business isn’t moving in a direction the shareholders like.

It follows that one of the key shareholder powers is to appoint and remove directors.

However, this right may be overridden by the company’s constitution.

In this guide, we look at how you appoint directors, who can be a director and the corporate governance requirements for appointing a director.

Introduction

A company acts through two groups of people – its shareholders and its board of directors.

The general role of directors is to manage the business for the benefit of the shareholders.

Executive directors are those charged with the daily management of the business.

They are also usually employees of the business too (providing them with the benefits that come with that status).

Non-executive directors typically play a far less hands-on role.

They’re not employees of the company and thus don’t have any of the benefits or protections that come with that status.

They tend to be involved in giving more specialist or niche support to the business from time to time.

But they remain liable for the responsible running of the business and are usually entitled to see all aspects of the company’s business, including its financial position.

Although a company is a separate legal entity, it can only make decisions through those authorised for that purpose, usually its directors.

The directors are basically the agents of the company, appointed by the shareholders to manage its day-to-day affairs.

Directors have the power to bind the company and are the officers of the company but not necessarily employees of the company.

The effectiveness of a company’s directors is critical to its long-term success, and therefore, their appointment and role must be understood by any business.

A private limited company may have a single director, since the commencement of the Companies Act 2014 (the Act).

All other types of companies – public companies, DACs, unlimited and guarantee companies – require a minimum of two directors, but the Act does not specify a maximum number.

Where a company has one director, it is deemed to be a single-director company, even if its constitution provides for two directors.

Basic qualifications to act as a director

Directors must be individuals and must be over 18 years of age.

Anyone under the age of 18 may not be appointed a director, and any such appointment will have no effect.

Any proposed director cannot be an undischarged bankrupt.

It is also required that at least one director is resident in a member state of the EEA, failing which an insurance bond is required or a certificate from the Registrar of Companies that the company has a sufficient economic link with Ireland.

Subject to exceptions, a person may not hold more than 25 directorships in Irish companies (other than PLC’s)

Appointment of directors

When a company is already formed, the shareholders choose the directors.

In a new company, the directors are often the founders themselves, but as the company grows, the company may need additional directors to fulfil certain roles, such as a finance director.

The first directors are appointed at the time of registration of the company, and the persons named in Form A1 are deemed to have been appointed as the first directors.

Subsequent appointments of a director are governed largely by section 144 of the Act and the company’s constitution.

There are basically two ways to appoint a director of a company:

• appointment by the board of directors (at a board meeting); or
• appointment by the shareholders. This will require an ordinary resolution of the shareholders, to be passed at a general meeting.

Shareholders normally appoint directors at the company’s AGM (or an EGM if there’s a need for an urgent appointment).

The directors of the company can also co-opt or appoint new directors, either to fill a vacancy that occurs or as an additional director, but this needs to be confirmed by the shareholders in due course.

The total number of directors cannot exceed the number, if any, stated in the constitution.

Steps for appointing a director 

This is the usual procedure for appointing a new director:

Step 1: Check if you have the authority to make the appointment outright.

First of all, check your company’s constitution to ensure that the board has the authority to make the appointment.

It’s possible that you might need shareholder permission to make the appointment.

If you need to get shareholder permission, you should be able to produce and propose a written ordinary resolution to gain this consent.

A written resolution does not require a meeting but does require the consent of the shareholders to this.

Our template proposed ordinary written shareholder resolution will help you with this.

Alternatively, where an actual meeting of the Shareholders takes place, you should use our alternative template – ordinary resolution at a general meeting 

Step 2: Get it on the agenda

Assuming you have the authority you need, either add the proposed appointment to your next board meeting agenda or create a separate one if you want to make the appointment ahead of the next board meeting.

Alternatively, you can simply agree to make the appointment in writing and without an actual board meeting being held, provided all the Board agrees to this.

If you prefer not to hold a meeting to discuss the appointment, you can simply circulate the board resolution in the draft and request the agreement of the other directors in writing by return.

Once you have this, you can finalise the resolution.

Decisions of directors must be taken by a majority at a meeting.

If it is a written resolution where no board meeting is held, the decision must be unanimous.

You can find our board resolution template here.

Where a meeting takes place, the Board should ensure that Minutes are recorded of the meeting and we have a template for that.

Check out our board minutes – appointment of director.

You might also find our guide on board minutes and our guide to board meetings useful.

Step 3: Make sure you have the intended director’s consent

A letter of consent from the intended director is needed.

If a director is appointed without their consent, that appointment is void.

We have a letter of consent template to help you.

You should meet with the intended director first, to explain the role and what it entails.

Directors who are appointed to the board of a company carry certain duties and liabilities, and you should check that your candidate is aware of these and is content to accept them.

Our guide to directors and their duties and liabilities should help here too.

Step 4: Registration of appointment

The company must within the period of 14 days after the date of any change in its directors (or in its secretary), file a Form B10 with the CRO notifying it of the change and the date of the change.

You can file this online.

Note: If the company refuses or fails to file the B10 at the director’s request, the director may file the notice directly.

Registration of the appointment with the CRO is independent of the appointment of the director.

The company’s obligation to register the appointment of a director with the CRO is a separate compliance obligation.

It does not cause a change in status.

Step 5: Update your internal register of directors

Every company must keep a register of directors.

Every appointment and every termination of appointment needs to be recorded in this register, along with the details relating to that director.

The details required to be kept include:

• the director’s name
• any former names (including maiden names)
• an address for service (where official correspondence relating to the directorship for the company should be sent – often it’s the company’s registered office)
• the director’s residential address
• the country where the director is usually resident
• the director’s nationality
• the director’s business occupation
• their date of birth

You will find our Register of Directors template useful

Step 6: Don’t forget the contract and supporting materials

Being a director does not, in itself, make that person an employee of the company.

A directorship is an office, not necessarily an employment.

If, however, the company wants to enter into a service contract with the director, you can use our director’s service contract 

In these circumstances, relevant aspects of employment law (including statutory protection as to unfair dismissal and redundancy) apply in addition to the law relating to directors.

Most executive directors will be employees of the company; however, most non-executive directors will not.

Non-executive directors should also have written terms of engagement or a contract for services so that, at the very least, their requirements are clearly set out.

A contract for services which is not an employment contract.

You can use our non-executive director contract for services template.

Alternatively, if you’re looking for something a little less formal, you can use our letter for the appointment of a non-executive director

Step 7: Ratification by the shareholders

Where a director is appointed by the Board, and the constitution does not give the Board the authority to make the appointment outright, the Act requires that he/she holds office only until the next AGM and that they then seek reappointment by the shareholders, unless the company’s constitution alters this default provision.

So, you should always check your constitution before appointing any directors to establish what rules, if any, apply to your Company.

In the case of a single-director company, the sole director may appoint a person to be a director of the company by serving a notice in writing to the company stating that the named person is appointed as a director.

You should use our resolution of sole director to do this.

If the company is not a single-member company, and the right to appoint a director is not allowed for in the constitution, the appointment will need to be ratified by the Board at the next AGM.