Directors oversee the smooth running of a limited company. Shareholders own a limited company. Secretaries – if appointed – ensure that the company is running compliantly. People with significant control hold ultimate power over a company. But what about non-executive directors?
In this blog, we look at everything you need to know about non-executive directors (also known as NEDs), including how your business could benefit from having one. Let’s get started.
What is a non-executive director?
A non-executive director is someone who has been brought on to a company’s board of directors to lend their expertise and leadership to the current set of executive directors.
Unlike the executive directors(s), a non-executive director is not typically concerned with the day-to-day running of the limited company. Instead, it’s normal for a non-executive director to take a step back and steer the company through their guidance – almost like a mentor.
Because of this, the role of a non-executive director is not always a full-time one. Whilst they would normally expect remuneration, this isn’t always the case. In some instances, job satisfaction and building upon existing experience are often enough.
Of course, a non-executive director’s exact role will differ depending on the company.
Traditionally, non-executive directors have been associated with public limited companies (PLCs). However, they are by no means reserved for PLCs only. A good non-executive director will be able to provide drive and value to a private company limited by shares too.
How your business could benefit from a non-executive director
Generally speaking, the purpose of a non-executive director is to inject new energy into a business. Because of this, they’re often – but not always – appointed into existing companies that are going through difficulties or looking to scale up.
Here’s what your business could gain by taking on a non-executive director:
A new view
All businesses have processes that could be improved but have become enshrined in the way that it operates. With a fresh pair of eyes, a non-executive director can scrutinise any company practices (and the individuals responsible for them) that aren’t as efficient as they should be and suggest a better way forward.
Board accountability
It is the job of the board of directors to act in a way that benefits the company. Whilst it won’t sound particularly appealing to the current board of directors, it is one of the jobs of the non-executive director to question their methods, suggest alternative strategies, and in extreme circumstances, assist with the restructuring of the board.
New opportunities
When you take on a non-executive director, you’re also taking on their contact book. The right non-executive director should broaden your business’s horizons with new contacts including, suppliers, potential customers, investors, industry leaders, and other people it pays to know.
A valuable skill
In some circumstances, a business will hire a non-executive director who possesses a skill that will immediately advance the company or assist with a problematic area. For example, if a company is struggling with its digital marketing activity, you should consider working with an expert in marketing. Likewise, if a period of legal problems is anticipated, a company could appoint a solicitor.
Companies House and non-executive directors
As far as Companies House (the UK’s registrar of companies) is concerned, an executive director is simply a director. The process for appointing (and removing) a non-executive director is exactly the same, barring a few details regarding the internal company registers that we’ll touch on shortly.
This means that the official duties, responsibilities, and yes, liabilities that apply to a standard, executive director, also apply to a non-executive director.
This also means that non-executive directors do appear on the Companies House public register, although their status as a non-executive director will be indistinguishable from an executive director (their role will be displayed on the register as the generic ‘Director’).
Can anyone be a NED?
No. The same rules apply to a non-executive director that applies to an executive director when it comes to who can and can’t take on the role.
The person being appointed must be at least 16 years old. They can’t be disqualified from being a company director. They can’t be the company’s auditor, and they can’t be an undischarged bankrupt.
The exact reason why you’re taking on a non-executive director will inform the type of person you give the role to. However, experience and leadership skills should be an absolute must when seeking out a suitable person for your company.
It’s worth highlighting that a company can have as many non-executive directors as it sees fit.
Don’t confuse non-executive directors with non-statutory directors
A non-statutory director is one who has a job title with the word ‘director’ in it – for example, ‘Marketing Director’. But they aren’t appointed to the board of directors and so have not gone through the typical appointment process.
A non-executive director is a full member of the board, non-statutory directors are not (unless they have also been appointed as an executive director).
How to appoint a non-executive director
If your company has discussed the appointment of a non-executive director and tentatively agreed upon it, you first need to carefully seek out an appropriate candidate. Then:
- The director-to-be should sign a letter of consent confirming that they are coming on board as a director, and in particular – a non-executive director (this letter needs to be kept with the register of directors)
- Agree on the appointment via the passing of an ordinary resolution. This can be voted on by directors (if the articles of association allow for it) or shareholders
- Within 14 days of the appointment, Companies House should be notified via the AP01 Appointment of director form or online using Companies House WebFiling
We can help appoint your non-executive director
For only £29.99, our team of company experts will cover all the necessary steps to appoint a company director in a timely and fully compliant way. We will:
- Write the appointment letter
- Draw up the board resolution
- Submit the necessary documentation to Companies House
After purchasing the service, be sure to notify our team that the appointment is for a non-executive director. We’ll then take care of the rest.
Thank you for reading
The right non-executive director will use their wealth of experience and knowledge to give any business, large or small, a much-needed boost. This could be to help a company navigate a tricky period, inspire growth and change, or ultimately – set the company up for an acquisition.
We hope you now understand the role of a non-executive director and answered any questions that you may have about it.
Please get in touch via a comment if you have any queries about non-executive directors, or anything else associated with limited companies. We’ll be happy to help.
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