Land and Expand part IV – Local Country Incorporation

As we reach stage 4 of our Land & Expand journey, our attention turns to incorporation and an overview of what should be considered. We have chosen to focus on the UK however, the underlying approach varies little between countries and much can be gleaned in terms of best practice as you consider your next location.

Our sincere thanks to Damien Bechelli who addresses the various forms of entity and the Briars team for highlighting the rationale for retaining a Company Secretary in an SME. This article, therefore, has taken the opportunity to travel down a related but different path as we consider the team who will decide upon the strategic goals for your new corporation; how that corporate should operate and what burden this will place upon your key players. Some of this has been touched upon by Professor Bob Garratt in his August article which is definitely worth rereading.

With our focus primarily upon UK SMEs, what exactly is a director? This elusive character could be difficult to identify in a suspicious suspects line-up. Directors appear in many forms and even Sherlock Holmes would struggle on occasion to spot the right one. They come out during both day and night and no two look the same: it can often take a trained eye to catch one!

If you are unlucky not to have an experienced tracker on your team then what follows may help you in your mission……

There are many variations but a common characteristic across all will be their “continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them properly to discharge their duties as directors”[1]

The key 7 versions are:

1. De Jure
2. De Facto
3. Shadow
4. Nominees
5. Executive
6. Non-Executive
7. Alternate

1. De Jure – are validly appointed directors
2. De Facto – are deemed to be directors based on factual evidence, although not formally or validly appointed as such. This requires attention to be paid to actions. For example, is the individual carrying out activities that would normally only be done by a de jure director. Be aware that it is possible for the de facto director not to retain the same broad remit as the de jure director and only fulfil the role of director in relation to certain aspects of the business.
3. Shadow – may on occasion, “lurk in the shadows[2]” but this need not be the case. This nomenclature may refer to an individual who is not a professional advisor yet holds identifiable sway over a board of directors, clearly influencing corporate strategy. Perhaps this may be a major shareholder or even the parent company itself. Care should be exercised to ensure all such situations are properly managed.
4. Nominee – will usually refer to a de jure director who is linked through some form of obligation to someone or something that is not the company (e.g. a shareholder, arising out of clauses perhaps within the shareholders’ agreement). Despite this link, the Nominee must exercise powers in line with best practice for the company and not place the interests of that link before the company’s interests[3]. The 2008 Cobden[4] case sets out the parameters surrounding a Nominee’s responsibilities as a director which include: the Nominee is treated as all other directors in terms of duties and that such duties can be qualified.
5. Executive – often refers to de jure directors and are normally actively employed within the company. All duties that relate to the de jure will relate to the Executive.
6. Non-executive – are likely to also be de jure directors but in this case are not actively employed within the company and are committed to the business for only part of their time, working at a board advisory level. In terms of duties, the Non-executive is a director and must be compliant with and adhere to the directors’ duties as outlined in the legislation. It is expected that this category will possess the relevant skills to reflect their role.
7. Alternate – are effective through the model articles for public companies. However, should a private company wish to utilise this approach then changes must be made to accommodate such within the SME’s Articles of Association. This facility enables an alternate director to be effective when an existing de jure director is not available to be party to a board decision. The Alternate carries its own liability and does not operate as agent for the director being replaced.

There are other forms since it is possible to create other forms of directorship, but these would be addressed within the company’s articles of association.

Ultimately, across all forms of director, the individuals are duty bound to act in the best interests of the company, employ independent judgement and ensure they are not subject to conflicts of interest.

Hopefully, this gives you an insight into the roles currently being played by your key players and it may be that some are acting unknowingly as directors today. As you seek to streamline and improve your corporate governance and strengthen your board to deliver across the raft of legislative requirements and ESG practices please feel free to reach out to us at info@briarsgroup.com and we would be happy to support your endeavours.

[1] Re Barings plc (No5), Secretary of State for Trade and Industry v Baker (No 5) [2000] 1 BCLC 523

[2] Re Hydrocam (Corby) Ltd [1994] 2 BCLC 180

[3] Re Duomatic Ltd [1969] 2 Ch 365

[4] Cobden Investments Ltd v RWM Langport Ltd […] [2008] EWHC 2810