5. Companies: Directors and Officers Flashcards
How is a director appointed in a company limited by shares?
- Board resolution, or
- Ordinary shareholder resolution
Within what time period of a director appointment or a change to a director’s details must the Registrar be notified?
14 days
What is a de jure director?
Director who has been formally and properly appointed, and registered with the Registrar
What is a de facto director?
Someone who is not a de jure director, but who carries out all of the duties of and behaves like one
What is a shadow director?
A non-director in accordance with whose instructions the actual directors are accustomed to act, and they are treated the same as de jure or de facto
What is an alternate director?
Someone appointed by a director to attend and vote at board meetings when the director is unable to
What is a nominee director?
Someone appointed by the board to represent the interests of a particular stakeholder, although they must still act in the best interests of the company
What is the maximum length a director’s employment contract can be before it needs shareholder approval?
Two years
What is a director’s status from an agency perspective?
Directors are agents of the company, and can bind the company in contract, and in tort (if acting with authority)
What four things will not affect the validity of acts of a person acting as a director, if they are subsequently discovered?
- Defect in appointment
- Disqualified from holding office
- Ceased to hold office
- Not entitled to vote on the matter in question
How is actual authority granted expressly?
In the articles, or by resolution
Although the articles generally require the board to act collectively, may the board delegate authority over specific matters to a particular director or group of directors?
Yes
Why does apparent authority not arise frequently in a company, and what is one situation where it might?
Because a director will generally not have the power to bind the company, except when the directors act as a board.
Apparent authority could arise through past dealings.
What are the two ways a company can execute a document?
- Affixing their seal
- Signature
What are the three ways a company can execute a document by signature?
Signature of:
- Two directors
- One director and a secretary
- One director, if signed in the presence of a witness who attests
What is required for shareholders to ratify a director’s conduct which was in breach of their duty, and whose vote would be disregarded?
Ordinary shareholders resolution, disregarding the vote of the director in question if he is also a shareholder
What is a director’s common law duty?
Fiduciary duty to act in good faith and in the best interests of the company
What is the fate of any provision in the articles or contract that purports to exempt a director from liability that would otherwise attach through breach of duty, negligence, or breach of trust?
Void
What are the limits on a company’s ability to indemnify directors against claims brought by third parties concerning the director’s actions for the company?
Cannot be used for criminal or regulatory fines
Can a director still be subject to a statutory and fiduciary duty for the period they were a director, even after they cease to be one?
Yes, e.g. cannot act on an opportunity after you cease to be a director that you learned about whilst you were one
What is the limit on a director’s powers?
They must exercise powers only for the purpose for which they were conferred
What is the duty to promote success?
A director must act in the way the director considers, in good faith, would be most likely to promote the success of the company for the benefit of the members as a whole
What is the concept of enlightened shareholder value?
In promoting the success of the company, the directors need not focus solely on maximizing profit, and can consider other things like:
- Long term consequences of a decision
- Interests of company employees
- Need to foster business relationships
If a company is insolvent or on the brink of such, to whom is the director’s duty to shareholders displaced?
To the creditors
What are the objective and subjective limbs of a director’s duty to exercise care, skill, and diligence?
A director must exercise the care, skill, and diligence that would be exercised by a reasonably diligent person with:
- The general knowledge, skill and experience that may be expected of a director (objective), and
- The general knowledge, skill and experience the director in question actually has (subjective)
What standard will a director be judged by?
Whichever imposes the higher obligation
What is the duty to exercise independent judgment?
Director must exercise independent judgment, without subordinating their powers to the will of others
When will a director not be deemed to have subordinated their powers to the will of others?
When they act in accordance with an agreement entered into by the company, or in a way authorised by the articles
What else does the duty to exercise independent judgment not prevent?
Seeking advice from experts, as long as the director makes the final decision as does not delegate this to the expert
What is the duty to avoid conflicts of interest?
Director must avoid a situation in which they have or can have a direct or indirect interest that conflicts or may conflict with the interests of the company
In determining whether a conflict exists between a director and the company, is it relevant that the company was not able to take advantage of a particular opportunity themselves?
No, it is still a conflict
In what three situations will a conflict not arise?
- Transaction is with the company itself, and the board knows of the director’s interest
- Situation cannot reasonably be regarded as likely to give rise to a conflict
- Matter has been authorised by the directors
What is an exception to the duty not to accept a benefit from third party conferred by reason of being a director?
Where the benefit cannot reasonably be regarded as likely to give rise to a conflict of interest
What is the duty to declare interest in a transaction?
If a director is directly or indirectly interested in a proposed transaction with the company, or becomes such, they must give notice to the other directors before entering into or continuing
In what form must the notice of an interest be, and what must it include?
Written, or oral at a meeting, and it must include the nature and extent of the interest
Is a director interested in a transaction counted toward the quorum on that decision?
No
In what three situations will a director not have to declare an interest in a transaction?
- Transaction cannot reasonably be regarded as likely to give rise to a conflict
- Other directors are already aware
- Concerns director’s service contract which has already been considered by the board
What is required for a company to make a loan to a director, or to guarantee or give security for a loan to a director by a third party?
Shareholder approval
Under the model articles, what is required for any director to call a board meeting?
Giving reasonable notice to other members, or authorising the company secretary to give notice
How is reasonable notice determined?
Based on the situation
Does the notice need to be in writing?
No
What three things must the notice contain?
- Date/time
- Location
- How the meeting should be held if all directors won’t be in the same place
Notice of a board meeting must be given to all directors unless?
Unless the director has waived entitlement to notice of that meeting
What is the usual threshold for votes on an issue at a board meeting?
Simple majority
Who has the casting vote in the event of a deadlock, and what is the effect of this?
The chairman, effectively giving them a second vote on the issue
What is the minimum amount of directors need for a quorum?
Two
What is required for a director to pass a written resolution without a meeting?
Approval of all directors, not just a majority
Does a director whose service contract is being agreed at a meeting form part of the quorum or the vote on that issue?
No
Who has the power to remove directors, and what is the vote threshold?
Shareholders, by simple majority
Can a director be removed by written resolution?
No
Although the shareholders’ statutory right to remove a director overrides most provisions to the contrary in the articles, what does a Bushell v Faith clause provide?
It gives weighted voting rights to a director who is also a shareholder in the event of a resolution to remove them as a director
How much notice before a general shareholder meeting must a shareholder give of their intention to propose a resolution to remove a director?
28 days
What rights does the director have at the shareholder meeting to remove them?
- Make a written representation
- Speak at the shareholder meetings, even if not a shareholder
For a Plc, what must happen at the annual general shareholders meeting?
Directors who have been appointed since the last AGM or who were not appointed or reappointed at one of the preceding two AGMs must retire from office and offer themselves for reappointment
What three things is a disqualified director prohibited from doing?
- Act as a director
- Act as a receiver of a company’s property
- Take party in any way in promotion, formation, or management of a company
What four categories of things can a director be disqualified for?
- Conviction of indictable offence related to a company
- Persistent breaches of companies’ legislation
- Fraud
- Summary conviction of offence relating to failure to comply with filing requirements
When may a director be disqualified for being an unfit director of an insolvent company, and what is the range of disqualification?
A director can be disqualified for 2-15 years if their conduct, taken alone or viewed in line with their conduct as director of another company, makes them unfit to be in the management of a company
How can a director be disqualified for wrongful trading?
If the company was insolvent when they traded and they knew
Who appoints and removes the company secretary?
Directors
To be a secretary of a Plc, a person must have one of what four qualifications?
- Held office of secretary of a Plc for three of the five years preceding appointment
- Member of specified list of accountancy/secretarial bodies
- Barrister/solicitor in the UK, or
- Anyone who appears to the directors of being capable of discharging the functions of secretary
What are a secretary’s three responsibilities?
- Maintaining books and records
- Taking minutes at meetings
- Making sure company is in compliance with statutory obligations
What types of dealings can a secretary bind a company on?
Dealings of an administrative nature, of the type that a third party could reasonably assume are within the powers of a secretary
