Power of Attorney for Company Director

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sartay

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Can someone give me some information on this?

The scenario is that there is a private limited company with two directors. One director is basically just a 'silent' director (or whatever the appropriate terminology should be!) i.e. they don't do anything, they were just willing to provide their name on the legal documents etc to help the first director (and sole shareholder) meet the legal requirements to have two directors for the limited company.

Can they arrange a power of attorney in order to set out in writing that the 2nd director has no say over the running of the company? Is there a specific name for this type of power of attorney and can you get a fairly standard document drawn up by a solicitor without too much time and cost? Or would this not be a particularly common request and therefore unlikely that a solicitor would be able to sort it out quickly?

There are no trust problems between the two directors or anything like that. The reason for the power of attorney is to do with giving peace of mind to a possible third party investor.
 
If you are asking such questions you don't really know what a Board of Directors is, or its purpose. Every director has responsibilities. A person can not properly be a director in name only.
 
This is an extraordinarily complex, wasteful and maybe even illegal (in a company law sense) way to try and placate a potential investor, IMHO.

What is laid down in the memorandum and articles of association of the company? How do voting rights and decision-making powers get allocated?

The day of the "titular / honorary director" with no responsibilities is hopefully gone.
 
Padraigb said:
If you are asking such questions you don't really know what a Board of Directors is, or its purpose. Every director has responsibilities. A person can not properly be a director in name only.
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That's why I asked IF it is possible. I understand that company directors have legal responsibilities. But in PRACTICAL terms, the person is only a director a name. I understand that's a fairly common set up with small businesses where a person would ask a family member to act as their second director.

Clearly I don't understand all the issues or I wouldn't be on here asking about them.

I was googling the term power of attorney and companies and came across a company formation agent offering to set up a power of attorney when they provide a nominee director service (I HAVE tried to do a bit of research before I came on here). So from that I took it from that there was a way a doing it, seeing as people in the business seemed to be suggesting on their website that it is.
 
mathepac said:
The day of the "titular / honorary director" with no responsibilities is hopefully gone.
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Yeah, I'm pretty sure in legal terms that this type of thing can't exist. I've read the information leaflets from the CRO and they make it pretty clear that every director has some legal responsibilities anyway.

I guess what I wanted to know is can an agreement be written up so that the second director can't have a say in the running of the company, perhaps in terms of concluding sales agreements and that kind of thing.

Perhaps not. I was just wondering. The info that I've read on the issue so far is a bit conflicting and doesn't answer my questions.

Maybe I'd be better off getting onto that company formation agent pretending to be interested in their service and see what light they can shed on it.
 
sartay said:
... I guess what I wanted to know is can an agreement be written up so that the second director can't have a say in the running of the company, perhaps in terms of concluding sales agreements and that kind of thing...
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That bit is no problem. The Board of Directors should meet and decide things at a general level. The day-to-day running of the business is not the function of the board, and individual board members should not interfere in their capacity as board members. A member of the board can be appointed Managing Director, and can be put in charge of day-to-day matters provided that he or she adheres to the general direction set out by the board. That arrangement would not involve any special legal document, just a line in the minutes of the board to the effect that "X shall be appointed Managing Director...".
 
Ok, well giving someone the title Managing Director would certainly be simple and if that would be the only way to create the scenario that I outlined, that's great.

So what do you make of this extract from the afore-mentionned company formation agent (Irish based too I should add). Is it basically rubbish? Or have I totally misunderstood it's meaning (very possible)?



 
mathepac said:
What is laid down in the memorandum and articles of association of the company? How do voting rights and decision-making powers get allocated?
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I was pretty sure that the memorandum and articles of association were the bog standard ones - just checked the first paragraph in the Arts and it says:



So there's nothing particularly unusual about the way this company was set up - Table A is the standard, is that right?

Not sure if that answers your question or not though.
 
I'm not sure about the law on nominee directors (nominee shareholders are common enough). There should be no need for a power of attorney to allow anybody to run a business: all that is needed is a minuted decision by the Board of Directors.

The person in charge might or might not be a director (although you would use the title Managing Director only if the person in charge is a director; otherwise you use a different title, such as General Manager or Chief Executive). Similarly, the person in charge need not be a shareholder.
 
There are numerous cases which have been before the courts setting precedent and a Director is a Director FULL STOP. Mr Paul Applebey, who is the Director of Law enforcement makes absolutely no distinction between fully participating directors and "silent" Directors. Both are fully responsible and in fact the director doing nothing is deemed more irresponsible as he/she has absolutely neglected his/her duties as a director in Company Law.
Get active or Get OUT.

Secman
 
Thanks for all the replies everyone. I have to say that my limited knowledge of these issues would be in general agreement with the responses that I'm getting from you all.

But I'm just confused as to why so many companies seems to be offering Power of Attorney documents to nominee directors, if they ultimately have no legal standing.

http://www.formacompany.ie/company-directors/nominee-director.html

http://accountancyhere.com/nominee_director.html

http://www.offshorebvi.com/offshore.bvi.faq/bvi.company.structure.registration/power-attorney.php

I know that some of the sites are UK based sites - doesn't seem to be quite as much about it on Irish websites. I assume that Irish law on this wouldn't differ hugely to UK law? (Just a question! I don't know if it does)

I've actually also just this morning found a template Power of Attorney in relation to company directors. Again its a UK website.

http://www.fletcherkennedy.com/power-of-attorney.html

Any opinions on the meaning/substance of all these? What is the purpose of these documents if it could just be minuted in a Board Meeting that one director wouldn't have the power to conclude contracts etc?

I'm not arguing with anyone here by the way - just trying to understand the apparent conflicting info that I'm getting on the matter. Am I not understanding the legal subtleties of what a Power of Attorney does and doesn't offer?
 
The problem is just that the investor has heard of a Power of Attorney being used in this way and assumes that it is a fairly standard thing to implement. If it's a load of rubbish it would be good to have the reasons why in order to be able to explain it to them.
 
I think the difference is between:

(i) a director not having the power to conclude contracts (i.e not being a signatory); and
(ii) a director bowing out from taking responsibilities

(i) could be possible; (ii) isn't.

Note that, even if a director is internally not authorised to sign contracts, an outside party will still be able to rely on a signed document as legally binding as they will be authorised on the face of things.

Sprite
 
Thanks WaterSprite. So basically, a Power of Attorney or some similar agreement could be put in place, but ultimately if there are ever any significant problems (such as the example you gave where a director went off and signed an agreement with an outside party anyway, even though it was internally agreed that he couldn't do so), the agreement couldn't be relied upon anyway as it can't in anyway supersede the provisions of the Companies Acts, thus making the agreements pretty pointless?
 
Or could the internal agreement be used as a way for one director to sue to the other for breaching their internal agreement?

But in that scenario, would the internal agreement have no standing, because ultimately the director does actually have the legal power to enter into a contract on behalf of the company just by virtue of being a director?

Would the terminolgy 'Executive' and 'Non-Executive' directors make any difference here? If one director was made into a Non-Executive director, does that make any difference to the legal standing? I don't think Irish law distinguishes between the powers and duties of executive and non-executive directors does it?
 
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Hi Sartay,

You are mis-understanding many basic principles of company law. The issues are complex and would take a long time to explain. Powers of attorney are used to facilitate various circumstances. Contracts limiting the authority of directors are also used for specific circumstances. Neither can be used to achieve what you want to achieve.

Company law requires that an Irish registered company have two directors. You are attempting to obey that provision in form only, while entirely circumventing it in substance. This is not permitted.

The only way for you to deal with this correctly is for you to appoint a second director who is willing to take on the responsibility and whom you trust. If you wish to limit the authority of one director (which you can do to a limited extent and with limited effect) you need to see a solicitor to have a director's service agreement drawn up.

Kate.
 

Oh dear - I seem to have confused matters rather than helping things.

- there is no difference between execs and non-execs as far as duties go
- you cannot disclaim your duties as a director, regardless of any agreement to the contrary
- the board can delegate the day-to-day running of the business to an MD/CEO (who need not be a director)
- you can restrict who can sign on behalf of the company
- even if you do restrict signature authority, a third party may still rely on a document signed by any director unless they were put on notice that the director was not authorised
- I'd imagine that you would have a cause of action against a director that signed a document when there was an express agreement that s/he didn't have authority to do so - it could certainly be misconduct. The internal agreement would really only be relevant as between the director and the company - as with the previous point, third parties can rely on the ostensible authority of a director's signature, absent being on notice to the contrary
- there are certain documents that can only be signed by directors (or a director and secretary)

I agree with Kate - don't do this via an amateur solution and hope that it gets you where you want to go (which may not be possible at all) - seek professional legal advice.
 
Thanks Kate and WaterSprite and everyone else. I have plenty of information to go back to the investor with now (it was he that was asking about the possibility of a Power of Attorney).

Thanks for taking the time to explain the issues. Much appreciated.
 
Many solicitors, I suspect the large majority of them, have little experience of dealing with matters of company law. Accountants in public practice, however, tend to be fairly conversant with it. If you decide to seek professional advice (and I think you should, as you are approaching your questions from a basis of relatively little knowledge and a commendable desire to get properly to grips with things) then your first port of call might usefully be an accountant.

[I am neither a solicitor nor an accountant, so have no interest to advance.]
 
I disagree Padraigb. While I agree that few solicitors are experienced in Co Law, no accountant will be able to help the op with his query. Accountants do not draft or negotiate contracts. They are not conversant generally with co law outside of what is required to properly audit a company or advise in relation to taxation/accounting matters generally. The op needs a good solicitor.
 
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