Are you a member or director of a new company?
What is the difference between members, directors and trustees? This is a great question we received recently, as these terms are used all the time and yet the obligations behind them are not always fully understood.
When a new company is first incorporated, the first members of the company are the subscribers. They automatically become members once the company is registered at Companies House.
If a company is limited by shares, a member of the company will hold shares in that company and will have the legal title of those shares. Proof of legal title is the entry of the individual’s name in the register of members.
If a company is limited by guarantee, a member of the company will have agreed to become a member and will have their name entered in the register of members. The membership process can be set out in the articles of association or in the by-laws and rules of the company. Any individual who wants to become a member would usually complete an application for membership. The admission to membership would be at the discretion of the directors who would either accept or reject it.
The terms ‘trustees’ and ‘directors’ are interchangeable and in particular the term ‘trustee’ is used in charitable companies. Both terms indicate officers of the company and they are the individuals who run the day-to-day operations of the company and make the major decisions. Some guarantee companies also use the term ‘Council.’ This also means the directors of the company.
When it comes to voting, the members and directors obligation are different! Members vote at general meetings on matters that have been put to them by the directors of the company. For example, in the case of a guarantee company, if the directors want to change the objects of the company they would have to ask the members to vote on a special resolution to make these changes. The directors vote at board meetings on matters concerning the management and control of the company’s business.
Whether an individual is a trustee/director or a member of the Council they should be aware of their duties under the Companies Act 2006. It is also important for an individual who is a member of the company and a director/trustee or a member of the Council to remember the distinction between their roles as the implications of failing to fulfil duties can be detrimental.
Would you like to talk more about this with us? Get in touch.
Author: Karina James-Wiltshire
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