Director appointments are typically straightforward and uncontentious, but the situation can be less clear if there is a deadlocked board or an underlying dispute between directors and/or shareholders.

The ability to appoint a new director by either shareholders or directors can be a powerful tool to break any deadlock in a company.

The role of the board and shareholders in decision-making

A typical company is run by the board of directors and the shareholders only have a limited say.

Shareholders’ powers to influence the board lie in the ability to change its make-up. Otherwise, the shareholders’ ‘reserve power’ allows them to either require the directors to take a certain decision, or refrain from taking a certain decision. This requires a ‘special resolution’ of the shareholders (at least 75 per cent of the votes).

There are also certain decisions which the board cannot take themselves and for which shareholder approval is needed; the most important decisions reserved to shareholders require a ‘special resolution’, with less important decisions requiring an ‘ordinary resolution’ (at least 50 per cent of the votes).

Rather than removing existing directors, it can be strategically preferable to gain control of the board by appointing additional directors.

In this article, we will explore some of the ways that additional directors can be appointed.

How many directors can, or must, a company have?

Section 154 of the Companies Act 2006 (CA), requires a private company to have at least one director who is a natural person (i.e. an individual human being, not a company). The company’s articles of association may also specify a minimum number of directors.

Issues can arise when a company only has one director (who is also a shareholder) and the other non-director shareholders do not agree with the way the company is being run, leading to a dispute. Allegations of unfairly prejudicial conduct by the non-director shareholder can ensue, but in reality, a non-director shareholder has limited rights to company information and decision-making powers unless there is a shareholders’ agreement in place that specifies otherwise. In those circumstances, the non-director shareholders may consider what rights they have, including to appoint new directors (e.g. themselves) to the board to be able to influence, or block, decisions in their favour and to protect their position as shareholders.

In some circumstances where a company has one director and has adopted the Model Articles, there is a question over the ability of the director to take meaningful decisions until new directors are appointed.

What is the procedure for appointment of directors?

This process is typically outlined in the company’s articles or possibly a shareholders’ agreement.

Director appointments can be granted by the board, by the shareholders via a written ‘ordinary’ resolution or at a general meeting. The new director must have consented and be eligible to act as a director.

Any restrictions on shareholders’ rights to appoint directors must be clearly stated in the company’s articles to be enforceable. This is different to a shareholder’s right to remove a director, which cannot be restricted by a company’s articles.

How the shareholders can call a general meeting

As a first step, the non-director shareholders could ask the board (informally) to call a general meeting. If there is a dispute and the board will not call a general meeting, the CA allows a minority shareholder to require the directors to call a general meeting of the shareholders.

The directors of the company are required to call a general meeting if they receive a request to do so from members representing at least 5 per cent of the total voting rights. These provisions override anything to the contrary in a company’s articles of association.

Requisitioning a general meeting requires a specified procedure to be followed and early advice should be sought to ensure compliance.

Provided a request is properly made by a shareholder (which, as a minimum, sets out the general nature of the business to be dealt with at the general meeting), the board must, within 21 days, call a general meeting for a date not more than 28 days after the date of notice.

If the director fails to call the meeting, then the members who requested it may themselves call the meeting, for a date not more than three months after the request was made.

If all the above notice periods are extended to their limit, the meeting may not be held until over two months after the shareholders serve their initial notice. Therefore, it is not a quick process, particularly if the company structure is complex with multiple subsidiaries.

Potential limitations

Complications can arise where there are weighted voting rights in the company’s constitution which could affect the voting and the ability for the resolution to be passed. There may also be specific provisions in a shareholders’ agreement that need to be borne in mind.

Related formalities and registration requirements

Once a new director is appointed, the company must notify Companies House within 14 days of this appointment (by the completion and submission of form AP01) and the company’s statutory register of directors should be updated.

New rules will soon require all directors of companies incorporated in England and Wales (and overseas companies who are required to register particulars with Companies House) to have their identify verified. It is anticipated that the new requirements will take effect from Autumn 2025, but the exact dates are yet to be confirmed.

Conclusion

It is important for all companies to consider their constitutional documents and what they provide for in terms of appointment and removal of directors.

Whilst ideally this should be done upon incorporation, amendments to a company’s articles can be done at any time, or a shareholders’ agreement put in place, again provided the correct procedures are followed for the implementation of these documents (including, crucially, obtaining the approval of relevant shareholders).

We recommend you seek legal advice to ensure that any procedure for appointing directors is followed.  

Stephen Burns, partner, and Katie Bewick, senior associate, represent law firm Charles Russell Speechlys.

Read more

5 reasons you may need a non-executive director – Should you appoint a non-executive director (NED) to help your business? With decades of accomplishments as a non-executive director, executive director and chair, Frank Lewis explains when and why you may need a NED

Scaling up your business without hiring full-time staff – Here are a handful of ways that you can scale up your business without increasing the headcount

10 Business Grants for UK Start Ups and Growth Businesses – Grants can save businesses money, introduce them to networks and help them scale. Here are ten sources of funding ideal for UK start ups and businesses looking to accelerate their growth