Welcome to the Supporting Cast!
In our previous chapters, we spent a lot of time talking about the Directors— the people who drive the company forward. But even the best driver needs a navigator and a mechanic to keep the car on the road. In the world of Corporate Law, those vital "supporting" roles are the Company Secretary and the External Auditor.
In this chapter, we are going to look at who these people are, what they do, and why the law says they are necessary. Don't worry if legal titles sound a bit dry; we'll break them down using simple analogies so you can ace your exam!
1. The Company Secretary: The Administrative Backbone
Think of the Company Secretary as the "Chief Compliance Officer." They aren't there to make tea or type letters; they are high-level officers responsible for making sure the company follows the law and stays organized.
Who Needs a Secretary?
The rules depend on the type of company:
• Private Limited Companies (Ltd): Since the Companies Act 2006, private companies are not required to have a secretary unless their Articles of Association specifically say they must. If they don't have one, the directors handle the secretarial duties.
• Public Limited Companies (PLC): These must have a secretary. Because PLCs deal with the public’s money, the law demands a dedicated person to handle the heavy legal paperwork.
Qualifications (PLCs Only)
For a private company, anyone can be the secretary. But for a PLC, the directors must ensure the person is qualified. They must meet at least one of these criteria:
1. They have held the office of secretary in a PLC for at least 3 of the 5 years before their appointment.
2. They are a member of a recognized professional body (like ACCA, ICAEW, or ICSA).
3. They are a barrister, advocate, or solicitor.
4. They are someone who, by virtue of their previous experience or other positions, the directors think is capable of doing the job.
What Does a Secretary Actually Do?
Their duties are mostly administrative, not managerial. Key tasks include:
• Maintaining statutory registers (like the Register of Members).
• Filing necessary documents at Companies House (like annual accounts).
• Organizing board meetings and general meetings.
• Taking the minutes (the official record) of meetings.
The Secretary’s Power (Authority)
Can a secretary sign a contract and bind the company? It depends!
• Actual Authority: Whatever the board specifically tells them they can do.
• Ostensible (Apparent) Authority: Because of their role, the "outside world" can assume the secretary has the power to sign administrative contracts (e.g., hiring cars for the business, ordering office supplies). They cannot bind the company to major commercial deals (like buying a new factory) unless specifically authorized.
Did you know? In the famous case of Panorama Developments v Fidelis Furnishing Fabrics, a company secretary fraudulently hired luxury cars for his own use. The court ruled the company had to pay because, to an outsider, a secretary has the "apparent authority" to enter into administrative contracts like car hire.
Quick Review: The Secretary
• Private: Optional.
• Public: Mandatory + Qualified.
• Role: Administration and compliance.
• Authority: Administrative contracts only.
2. The External Auditor: The Independent Watchdog
If the directors are the ones cooking the meal (the financial statements), the External Auditor is the health inspector who comes in to make sure the food is safe to eat. Their job is to give an independent opinion on whether the accounts show a "true and fair view."
Appointment of Auditors
Auditors are usually appointed by the shareholders by ordinary resolution. However, directors can appoint the first-ever auditor or fill a "casual vacancy" if an auditor leaves suddenly during the year.
Exemptions: Who Doesn't Need an Audit?
Small companies are often exempt from audit to save them time and money. Generally, a company is "small" if it meets two out of three criteria:
1. Turnover not more than £10.2 million.
2. Balance sheet total not more than £5.1 million.
3. Average number of employees not more than 50.
The Auditor’s Rights
To do their job properly, auditors have powerful legal rights. You can remember these with the mnemonic "AIR":
• A - Access: Right of access at all times to the company’s books and accounts.
• I - Information: Right to require any officer or employee to provide information or explanations needed for the audit.
• R - Reports/Meetings: Right to receive notice of, and attend, any general meetings and to be heard on matters concerning them as auditors.
The Auditor’s Duties
The auditor’s primary duty is to report to the members (shareholders) on whether the accounts are prepared correctly according to the law and accounting standards.
How to Remove an Auditor
Because auditors are "watchdogs," directors might try to fire them if they find something suspicious. To prevent this, the law protects auditors:
1. They can only be removed by an Ordinary Resolution with Special Notice (28 days).
2. The auditor has the "Right to Protest." They can send a written representation to the company, which must be sent to all shareholders.
3. If they resign, they must submit a "Statement of Circumstances" explaining why they are leaving (or stating that there are no hidden issues shareholders should know about).
Common Mistake to Avoid: Many students think auditors work for the directors. They don't! They are appointed by and report to the shareholders. Their job is to protect the shareholders from the directors' mistakes or dishonesty.
Key Takeaway: The Auditor
• Purpose: Independence and "true and fair" view.
• Rights: Access to books and information.
• Protection: Strict legal process for removal to ensure they aren't bullied by directors.
Summary Checklist
Don't worry if this feels like a lot of rules! Just remember these three "Big Ideas" for your exam:
1. Public vs. Private: PLCs must have a qualified secretary; private companies have the choice.
2. Administrative vs. Managerial: The Secretary handles the "paperwork" (registers, filings) and has authority only for administrative tasks.
3. The Independent Watchdog: The Auditor is there for the shareholders. They have the right to see everything and are very hard to fire without a good reason.
Keep going! You're mastering the "Management and Administration" section of the syllabus one step at a time!