By Shannon Power, 25th August 2023
Company Directors have a critical role in guiding a company’s path in the complex realm of corporate governance. Proprietary directors, a crucial category of company directors, hold particular importance in Irish company law. This blog post will examine the definition of a proprietary director in Ireland and their significance in the business world.
What is a Proprietary Director?
In Ireland, proprietary directors are individuals who hold their directorial or board positions according to their shareholding in the company. A “proprietary director” refers to a company director who either possesses over 15% of the ordinary share capital or has the power to control it, whether directly or indirectly. They are typically appointed by shareholders, often major stakeholders, to represent their interests and ensure that their views are represented at the board level. Proprietary directors are also known as nominee directors, as they can be nominated by shareholders to serve on the board of directors.
What are the obligations of a Proprietary Director?
Following the CRO’s introduction of required PPS numbers by directors of Irish companies on a large number of CRO forms, if you are a proprietary director of an Irish company, you are legally obliged to register for a PPS number and are required to file a self-assessed tax return each year in your capacity as a proprietary director. Non-proprietary directors are not required to register for a PPS number if they are not resident in Ireland and are not taking dividends or salary from the company.
Proprietary directors are also obliged to register for Income Tax with Revenue and a self-assessment return in her/his capacity as a director. If directors need to submit a self-assessment return, they may face a surcharge if they don’t file it on time. This surcharge will be determined by their income tax liability before accounting for tax paid through the PAYE system, even if they have already paid a significant amount of tax through PAYE. This information is covered under section 1084(3) of the Taxes Consolidation Act 1997 (TCA). It is important to note that proprietary directors are not entitled to an Employee Tax Credit. Usually, this rule will also apply to a spouse or family member of a proprietary director who receives a salary from the company, with a few exceptions. Nonetheless, Proprietary Directors, as well as their spouses and family members, may be eligible for the Earned Income Credit.
As a company director, it is also important to consider Employer’s PRSI. According to Section 16 of the Social Welfare and Pensions (Miscellaneous Provisions) Act 2013, if you own or control 50% or more of a company’s shareholding, you will be subject to PRSI under Class S, which is currently at 4% of your gross income. For proprietary directors who own or control less than 50% of the shareholding, the PRSI class applicable is determined on a case-by-case basis by the Scope Section of the Department of Social Protection.
To be considered a proprietary director in Ireland, an individual must meet certain criteria:
Shareholding Requirement: Proprietary directors must hold, either directly or indirectly, more than 15% of the ordinary share capital. The specific threshold might vary from one company to another, but generally, the shareholding should be substantial enough to reflect a genuine interest in the company’s affairs.
What is the significance of Proprietary Directors?
Proprietary directors (as well as non-proprietary directors) serve a crucial function within the corporate governance framework of Irish companies. Here are some reasons why they are significant:
Protection of Shareholder Interests: One of the primary roles of directors is to safeguard the interests of the shareholders who appointed them. They can bring a shareholder perspective to the boardroom, ensuring that strategic decisions align with the expectations of the major stakeholders.
Influence on Decision-Making: Given their shareholding and close connection with major shareholders, directors can influence key decisions made at the board level. This can be particularly valuable in cases where the interests of minority shareholders need to be protected.
Insider Knowledge: Directors often have an in-depth understanding of the company’s operations, financials, and industry dynamics due to their close involvement with major shareholders. This insider knowledge can contribute to more informed and strategic decision-making.
Conflict Resolution: In situations where conflicts arise between different shareholder groups or between shareholders and management, directors can mediate. They can use their position to bridge gaps and find solutions that are acceptable to all parties.
Enhanced Accountability: Having directors on the board enhances transparency and accountability. These directors can hold the management team accountable for their actions and ensure that the company is being run in the best interests of shareholders.
Stability and Continuity: Directors can provide stability and continuity to the company’s governance, as they often have a long-term commitment to the organisation’s success.
Company directors in Ireland occupy a unique and significant position within the corporate landscape. The strategic direction of a company can be greatly influenced by proprietary directors in support of major stakeholders. Their ability to balance shareholder interests with broader business goals makes them valuable contributors to effective corporate governance. By ensuring that diverse viewpoints are considered, proprietary directors contribute to the overall success and sustainability of Irish companies.
If you have any further questions surrounding company directors, whether proprietary or non-proprietary, our team will be happy to help! Give us a call at +353(0)1 6461625 or fill out our online contact form.
Disclaimer This article is for guidance purposes only. It does not constitute legal or professional advice. No liability is accepted by Company Bureau for any action taken or not taken in reliance on the information set out in this article. Professional or legal advice should be obtained before taking or refraining from any action as a result of this article. Any and all information is subject to change.