Directors, shareholders, people with significant control (PSCs), and company secretaries are official roles in UK limited companies. But who are these people and what do they do? Does every company have directors, shareholders, PSCs, and secretaries?
In this post, we provide a comprehensive overview of each role, including the legal requirements and responsibilities of each position. By the end, you will have a clear understanding of these four limited company appointments.
The difference between directors, shareholders, PSCs, and company secretaries
By law, all companies must have at least one director and one shareholder (or guarantor, if the company is limited by guarantee). Directors run the company, whilst shareholders own it.
Most companies have people with significant control (PSCs). These are the people who hold a considerable degree of influence or control over the business. Generally, PSCs are also shareholders or guarantors of the company.
Only some companies choose to appoint secretaries to oversee and advise on corporate compliance and governance. This role is optional for private companies, but a legal requirement for public limited companies (PLCs).
You can choose to appoint different people to each of these roles. However, it is common for the same person to hold more than one type of position at a time. For example, one person can be a director, shareholder, and PSC. This is often the case when setting up a company by yourself.
Company directors are individuals who are legally responsible for everything that a company does. They must ensure that the organisation complies with all legal obligations set out in the Companies Act 2006, the articles of association, and all other regulations relevant to the business.
When forming a company and appointing a director, you need to be aware of the following points:
- You must appoint at least one director during the company formation process
- Directors are normally shareholders in the same company
- You can appoint as many directors as your like
- A company director can be a natural person (human) or a corporate body (another company). However, there must always be at least one natural director in office at all times
- You do not have to be a UK citizen or resident to be the director of a UK company
Directors must be at least 16 years of age, but some companies stipulate a higher minimum age requirement in their articles of association.
You cannot be a director if you are an undischarged bankrupt, are subject to a Debt Relief Order (DRO), or have been disqualified (banned) as a director. In some cases, however, the court may make an exception.
The role of a director comes with a great deal of responsibility. Typically, duties include:
- Managing the company’s day-to-day activities
- Making decisions on behalf of the company and its members
- Overseeing finances
- Ensuring the company meets its statutory and regulatory reporting obligations, e.g. filing annual accounts, tax returns, and confirmation statements
- Paying business taxes – e.g. Corporation Tax, VAT, employers’ PAYE
- Maintaining company and accounting records
- Strategic planning and decision making
The responsibilities and duties of a director are set out in the Companies Act 2006 and the articles of association. Some companies also have shareholders’ agreements, which may further specify the role.
Shareholders are individuals who own a company by taking at least one of its issued shares. The first shareholders (those who become members during the company formation process) are also known as subscribers.
When setting up a company and issuing shares, you need to bear in mind the following important points:
- A limited by shares company must have at least one shareholder
- Every shareholder must hold at least one share in the company
- It is common practice for shareholders to also be directors of the same company
- They are usually PSCs, by virtue of dividend rights and voting rights attached to their shares
- Companies can have as many shareholders as they want unless they include specific restrictions in their articles of association
- They can be natural persons or corporate bodies
- You do not have to be a UK resident or citizen to be a shareholder of a UK company
Unlike directors, there is no minimum age requirement for shareholders in private limited companies. This means that minors under the age of 16 can hold shares, receive dividend payments, and vote on company affairs. However, some companies include restrictions in their articles to prevent children from being shareholders.
Typically, the role of a shareholder involves:
- Investing money in a company in exchange for one or more shares
- Appointing the first directors during the company formation process
- Exercising control by voting on important matters regarding the company
- Receiving company profits in the form of dividends
- Assuming limited liability for the company’s debts – the individual’s personal liability is based on the nominal sum they agree to pay for their shares, which is usually £1/share
The extent of each shareholder’s ownership and/or control of a company is determined by the percentage of shares held and/or the rights attached to those shares.
You can vary the rights of shareholders by issuing different types of shares, both during and after company formation.
Some types (classes) of shares provide only dividends, but no right to vote on company decisions. Whilst others provide only voting rights, extra voting rights, preferential dividends ahead of other shareholders, or the right of the company to take back the shares.
Are guarantors the same as shareholders?
Guarantors are the members of a limited by guarantee company, whereas shareholders are the members of a limited by shares company.
Limited by guarantee companies do not have any shareholders at all. This is because they do not issue shares and rarely distribute profits to members.
Generally, limited by guarantee companies are set up for charitable or non-profit purposes. Whilst limited by shares companies are normally set up for commercial (profit-making) purposes.
As a guarantor, limited liability for company debts is determined by a personal ‘guarantee’, rather than shares. Like shares, most guarantees have a nominal value of £1, but they can be set at any amount.
People with Significant Control (PSCs)
Since 30 June 2016, companies must identify every person with significant control (PSC) in the business and provide their details to Companies House. These are the individuals who have the right (power) to exercise a significant degree of influence and/or control over the company.
Typically, a person with significant control is anyone who:
- holds more than 25% of the company’s issued shares
- holds more than 25% of the company’s voting rights
- has the right to appoint and remove the majority of the company’s board of directors
- exercises, or has the right to exercise, significant influence or control of the company
- exercises, or has the right to exercise, significant influence or control over the activities of a trust or firm which is not a legal entity, but would itself satisfy any of the first four conditions if it were an individual
In many companies, particularly those owned by just one or two people, every member is a person with significant control.
For companies with multiple shareholders, only those members with the highest percentage of shareholdings or certain rights are classed as PSCs. Minority shareholders who hold less than 25% of the company’s shares or voting rights are not PSCs.
Directors do not qualify as people with significant control by virtue of carrying out their normal duties. They are only classed as PSCs if they are also members and/or meet one of the five qualifying conditions.
The role of a company secretary is predominantly administrative and advisory in nature, but it carries a great deal of weight. Generally, they are responsible for ensuring that the company and its directors operate in accordance with the laws, regulations, and rules to which they are subject.
The following conditions apply to the role of company secretary:
- A company secretary is mandatory for PLCs but optional for private limited companies (unless required by the articles)
- Anyone can be a company secretary of a private firm, including directors, members, PSCs, and corporate bodies. However, you cannot appoint a disqualified director, an undischarged bankrupt, or the company auditor to the role
- You can have as many company secretaries as you like
- By law, secretaries must be at least 16 years old
The role and responsibilities of a company secretary are wide-ranging and typically include:
- Statutory filing and reporting, including confirmation statements, annual accounts, and tax returns
- Maintaining statutory registers, company documents, and accounting records
- Organising board meetings and general meetings
- Overseeing and advising directors on matters of corporate governance and compliance
Many of these duties are similar to those normally carried out by directors. However, secretaries are appointed at the discretion of the board to provide specialist advice and support.
Consequently, directors remain ultimately responsible for the company’s actions and ensuring all duties are fulfilled in accordance with the law.
Can the same people be directors, shareholders, PSCs, and company secretaries?
Unless the company’s articles of association state otherwise, there is nothing to prohibit the same people from being directors, shareholders, PSCs, and company secretaries in the same firm.
Indeed, it is not unusual for one person to set up a company on their own and be the only director, shareholder, and PSC. In this situation, you would own, control, and manage the entire business by yourself.
However, it is less common for a director to also be a company secretary. The reason is that secretaries are hired to advise and assist directors, thus ensuring compliance and reducing their workload. Therefore, it is often counterintuitive for a director to also be the company secretary
That being said, there is no right or wrong way to arrange these roles. It is entirely up to members and directors to decide how to set up and run the company.
So, there you have…an overview of directors, shareholders, PSCs, and secretaries in UK limited companies.
We hope this post has been informative and given you a better understanding of these four important roles.
If you have any questions or need help with any aspect of setting up and running a limited company, please leave a comment below or contact our company formation team.