What a managing director is legally

Managing director is a job title, not an office created by the Companies Act 2006. Legally, a managing director is a director who has been appointed and registered like any other and then given extra executive powers by the board under the articles. Those delegated powers, together with the impression the title gives to people outside the company, are what allow a managing director to bind the company on their own.

Is managing director an office recognised by the Companies Act?

No. Section 154 of the Companies Act 2006 requires a private company to have at least one director and a public company at least two, but the Act does not create a separate office of managing director or say what one does. The closest it comes to a definition of director at all is section 250, which says that “director” includes any person occupying the position of director, by whatever name called.

The Companies House register reflects this. The required information about an individual director under section 167J is their name, date of birth, nationality, any relevant former names, a service address, a usual residential address and the part of the UK (or the country) where they usually live. There is no job title, so the record shows a director, not a managing director.

Legally, then, a managing director is a director, with executive powers delegated by the board, who usually also works under a service contract.

Where does a managing director’s power come from?

From the articles and the board, not from the title. Under article 3 of the model articles for private companies limited by shares, the directors are responsible for managing the company’s business and may exercise all its powers. Article 5 lets them delegate any of those powers to such person or committee, by such means, to such extent and on such terms as they think fit, to authorise further delegation, and to revoke or alter a delegation at any time. The model articles for public companies contain the same delegation power.

Older companies may still have Table A. Companies House guidance explains that the version of Table A in force when a company was incorporated is the one that applies, and later versions do not affect it. The 1985 Table A is more explicit: regulation 72 lets the directors delegate to “any managing director or any director holding any other executive office” such of their powers as they think desirable and regulation 84 lets them appoint one or more of their number to the office of managing director.

As ACCA’s guide to directors’ responsibilities puts it, constitutional powers normally belong to the directors collectively, so an individual director has no actual authority unless powers are delegated to them, for example as managing director.

How does the title let a managing director bind the company?

There are two routes.

• Actual authority. This is what the board has really delegated, whether in a board resolution, the service contract or both. Section 43 provides that a contract may be made on behalf of a company by any person acting under its authority, express or implied.
• Apparent authority. ACCA’s guide summarises the conditions from Freeman and Lockyer v Buckhurst Park Properties (Mangal) [1964]: a representation (which can be by conduct) that the person has authority, made by those with actual authority to manage the business, and reliance on it by the other party. Letting someone deal with customers and suppliers as managing director is the kind of conduct that can create authority beyond what the board intended.

Section 40 adds statutory protection. In favour of a person dealing with the company in good faith, the power of the directors to bind the company, or to authorise others to do so, is treated as free of any limitation under the constitution, including limits in shareholder resolutions or agreements between members. The other party need not enquire and is presumed to act in good faith. Section 40(5) keeps alive any liability of the directors for exceeding their powers. The wider rules are covered in directors’ authority to bind the company.

What does appointing a managing director involve?

1. Check the articles allow delegation (model article 5 or Table A regulations 72 and 84).
2. Make sure the person is a director. Under model article 17, a director can be appointed by ordinary resolution of the shareholders or by a decision of the directors. Nobody under 16 can be appointed (section 157). The company must notify Companies House within 14 days under section 167G, and the notice must include a statement that the person has consented to act and, for an individual, a statement that their identity is verified. See appointing a director.
3. Pass a board resolution. Record the appointment, the powers delegated, any limits and what stays with the board. Model article 15 requires a written record of every board decision to be kept for at least 10 years.
4. Put the service contract in place. A service contract under section 227 includes any contract under which a director personally performs services for the company. Section 228 requires a copy, or a written memorandum of the terms, to be kept available for inspection, normally at the registered office, and retained for at least a year after it ends.
5. Get member approval for long guaranteed terms. Under section 188, any provision under which the guaranteed term of a director’s employment is or may be longer than two years needs a resolution of the members, with a memorandum of the proposed contract made available to them first. Section 189 makes a provision agreed without approval void to that extent, and the contract is treated as terminable at any time on reasonable notice. Approval is not needed in a wholly owned subsidiary (section 188(6)).

Pay is set under model article 19, which entitles directors to such remuneration as the directors determine for services as directors and for any other services. Whether the managing director can vote on their own package depends on the article 14 conflict rules, explained in whether a director can vote on a matter they are interested in.

Does a managing director owe more than other directors?

The general duties in sections 171 to 177 are the same for every director, but the standard of care moves with the job. Section 174 measures care, skill and diligence against a reasonably diligent person with the general knowledge, skill and experience reasonably expected of someone carrying out the functions that director carries out, and the director’s own knowledge, skill and experience. A managing director running the business is judged against what is expected of someone in that role. The wrongful trading test in section 214(4) and (5) of the Insolvency Act 1986 works the same way.

Delegation does not take the rest of the board outside section 174. GOV.UK’s guidance on running a limited company makes the parallel point that you can hire others to manage things day to day but remain legally responsible for the company’s records, accounts and performance.

What happens when a managing director leaves or is removed?

The board can withdraw delegated powers at any time under model article 5(3), but that does not remove the person from the board. Removing a director needs the shareholders’ statutory power in section 168 (an ordinary resolution at a meeting, with special notice) or a route in the articles. Section 168(5) preserves any claim to compensation or damages for termination of the directorship or of any appointment that ends with it, which is why service contracts matter so much on an exit.

Under Table A regulation 84, an executive appointment ends automatically if the person stops being a director. The model articles have no equivalent provision, so the service contract and board resolution should say what happens to the executive role if the directorship ends, and vice versa. Resignation is covered in resigning as a company director.

Can someone be called managing director without being on the board?

It is risky. Because section 250 looks at the position occupied rather than the label, ACCA’s guide notes that the question is whether someone exercises a director’s functions, not only whether they were appointed and registered. A person given the managing director title who in practice runs the company with the board may be treated as a de facto director and owe the general duties. See shadow and de facto directors.

How might this work in practice?

Illustration only. Harbourside Ltd uses the model articles and has three directors. The board resolves to appoint Priya, already a director, as managing director, delegating day to day trading decisions and authority to sign supply contracts up to £50,000, with anything larger reserved to the board. Priya signs an £80,000 contract with a supplier who knows she is the managing director but knows nothing of the cap.

The cap is an internal limit set by board resolution, so Priya lacked actual authority for the contract. Whether Harbourside is bound will turn on apparent authority: the board held her out as managing director and the supplier relied on that. Even if the company is bound, Priya may be answerable to it for exceeding the authority she was given.

What mistakes do companies make?

• Announcing a managing director without a board resolution setting out the delegated powers and limits.
• Assuming the Companies House register shows who is managing director; it records directors only.
• Agreeing notice periods or fixed terms longer than two years without member approval under section 188.
• Forgetting to keep the managing director’s service contract available for inspection under section 228.

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Related Accountapedia entries

• The company secretary: role and duties
• The role of the chair of a company board
• The MLRO role in an accountancy practice
• What an insolvency practitioner does
• Who can be a company director

Related cover: Directors and officers liability insurance and Management liability insurance.

Sources

• legislation.gov.uk: Act 2006 c. 46, section 154
• legislation.gov.uk: Act 2006 c. 46, section 250
• legislation.gov.uk: Act 2006 c. 46, section 167J
• legislation.gov.uk: SI 2008/3229, schedule 1
• legislation.gov.uk: SI 2008/3229, schedule 3
• GOV.UK: Model articles of association for limited companies
• legislation.gov.uk: SI 1985/805
• ACCA: Tech tp cdd
• legislation.gov.uk: Act 2006 c. 46, section 43
• legislation.gov.uk: Act 2006 c. 46, section 40

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.