I would very much appreciate feedback and guidance in relation to these no doubt seemingly simple queries that are cause for current concern.
I set up a CIC limited by guarantee last December as sole director. Due to how the company has developed, there is now need to apply for larger pots of funding. The challenge which now presents itself is that awarding bodies such as "Awards for all" require at least 2 or 3 unrelated directors and signatories. I have read numerous previous comments on here relating to directors who have been in the same quandary as I currently am but I have been unable to trace direct clear answers.
My specific circumstances are - I do have 2 additional individuals who have volunteered for me for some time. I trust them entirely and do wish to add them as directors. What is the easiest way to achieve this? Within my bespoke articles it says
"Any person who is willing to act as a director, and is permitted to do so by law, may be appointed to be a director by decision of the directors"
As I mentioned I don't have any slight cause for concern with regards to my control of the company being jeopardised, owing to the nature of the additional individuals chosen. However, is there a way I can officially register my retaining of control? Perhaps via the Person with Significant Control section?
I apologise for the long winded query and any feedback will be greatly appreciated.
Thanks in advance
Some great questions here on growth, funding, governance and control. The circumstances that you are facing have certainly been met by other CICs and I will do my best to advise on what I view as the best way forward.
Firstly, I’m pleased to hear you are developing well. It is not a cliché to say that the first year is the hardest and research by the CIC Association confirms that CICs that trade past 21 months (the date that accounts need to be filed) remain on the register longer than ordinary companies.
Secondly you can appoint a director on-line using the Form AP01; the new directors will not be first or founding directors, that title rests with you. A word of caution, your associates should not take this role on lightly; they need to understand that the position brings with it legal duties, responsibilities and potential liabilities. They need to be aware also of the additional responsibilities in place for CIC directors. The CIC Regulator’s guidance helpfully explains that in practice, this may mean having regard to the interests of the community that the CIC is intended to serve, and in some cases giving more weight to those interests than generating financial returns for investors.
Regarding your specific questions, you will not need to change your Articles of Association nor do you need to alter your community interest statement (Form CIC36). These only need to be amended if you are changing your objects, activities or community of interest.
I’m also pleased to hear that whilst you have no concerns about the nature of the individuals you wish to appoint that you want to ensure that control of the company rests with you. These are legitimate concerns because far too many CICs have been taken over in this way or had to close down because of director conflict.
To avoid this, you may consider appointing your associates as non-executive directors (NEDs). There is no legal distinction between executive directors and NEDs and if they are going to vote at board meetings or if you want to meet the criteria of funders you will need to file an AP01. Generally speaking, the role of an NED is to provide an independent perspective and to offer a strategic overview but they do not get involved in day to day management issues and are not part of the executive team.
I would not expect NEDs to have the power to appoint or terminate directorships or engage in operational matters which would normally fall to the executive directors. To ensure clarity of role, the CIC needs to issue the new NED with a letter of appointment, which is in effect a contract for service and not a contract of employment. This will typically detail the terms and conditions of employment including length of appointment, duties, access to information, remuneration etc.
You should state clearly where the NED will have no role of influence such as voting rights, exercising corporate control and the potential to sack founding directors. You should also ensure that you have clear performance and review procedures in place which will provide you with the conditions to terminate the appointment should you feel it necessary.
Hope this helps.
Thank you for your guidance, not only very useful but really appreciated.
I would prefer to appoint them as NEDs, as long as this satisfies the funders. Can you please confirm that an NED is appointed by way of an AP01 online?
Yes file an AP01 online through to CH exactly the same as for an ordinary director. This would satisfy the funders because they are directors subject to company law, albeit with reduced authority.
As a footnote, ensure your People with Significant Control (Form PSC01) is now updated with CH to ensure that you have (i) ownership of voting rights , either more than 50% but less than 75%, or 75% or more and (ii) ownership of right to appoint/remove directors.
Hope this helps
did you end up appointing a NED? How did it go? And can you direct me to somewhere I can get a template letter of appointment so that I can see how it is structured and what it includes?
Many thank, Ali