Basic principles of company law

Question 1

What does the statement of the company’s authorised share capital do?

Answer 1

Put a limit on the number of shares the company could issue.

Question 2

What does the objects clause in a Memorandum do?

Answer 2

Enable shareholders to restrict the company’s powers in dealing with third parties.

Question 3

What does the concept of agency mean?

Answer 3

While a director is acting with the authority of the company (the principal), any act of the director is seen, in law, to be an act of the company.

Question 4

What happens when it’s hard to determine whether the agent has acted with the actual authority of the company?

Answer 4

The common law rules of agency need to be applied.

Question 5

Who do directors delegate their powers and functions to?

Answer 5

1. committees
2. individual directors (such as a managing director)
3. officers of the company who are not directors

Question 6

How much authority does the delegatee have and why?

Answer 6

Any delegation is done by means of a board resolution so that the delegatee acts with full board authority.

Question 7

What are the seven directors duties?

Answer 7

1. duty to act within powers
2. duty to promote the success of the company for the benefit of its members
   as a whole
3. duty to exercise independent judgment
4. duty to exercise reasonable care, skill and diligence
5. duty to avoid conflicts of interest
6. duty not to accept benefits from third parties
7. duty to declare any interest in a proposed transaction

Question 8

How do you view the person’s actions if he is a director and a shareholder at the same time?

Answer 8

It’s seen as two separate roles. The person’s actions need to be divided into those taken as a director and those as a shareholder, and analysed separately, in the relevant capacity.