Business - Shareholders and Directors Flashcards
What is the minimum number of directors required for all companies?
At least 1 (natural person)
Public companies require at least 2 directors.
What distinguishes executive directors from non-executive directors?
Executive directors have service/employment contracts, while non-executive directors do not.
What must a director do if they resign?
Complete form TM01 (individual) or form TM02 (company) within 14 days of resignation.
What is the duty to act within powers according to s 171 CA 2006?
A director must act in accordance with the company’s constitution and only exercise powers for their intended purposes.
What does the duty to promote the success of the company entail?
Acting in good faith to promote the success of the company for the benefit of its members as a whole.
What is required for a director to exercise independent judgement?
Directors must exercise independent judgement and can do so according to agreements or the company’s constitution.
What standard of care must directors exercise according to s 174 CA 2006?
Reasonable care, skill and diligence expected of a reasonably diligent person in similar circumstances.
What does the duty to avoid conflicts of interest require?
Directors must avoid situations where they have a direct or indirect interest that conflicts with the interests of the company.
What is prohibited under the duty not to accept benefits from third parties?
Accepting a benefit from a third party due to their position as a director.
When must a director declare interest in a proposed transaction?
Before the company enters into the transaction or arrangement.
What is the ratification of a breach of duty?
Shareholders can ratify a breach by ordinary resolution, effectively nullifying the breach.
What can happen under s 214 IA 1986 in a claim for wrongful trading?
The court may order a director to contribute to the company’s assets.
What must a director do to avoid liability for wrongful trading?
Take every step to minimize potential loss to the company’s creditors.
What constitutes fraudulent trading under s 213 IA 1986?
Carrying on the company’s business with intent to defraud creditors.
What is misfeasance?
Breach of any fiduciary or other duty by directors.
When can a company make a loan to a director?
Only if approved by the company’s shareholders by ordinary resolution.
What is an exception to the requirement for an ordinary resolution for loans to directors?
- expenditure on company business. This exception is only available for a loan or loans up to a maximum of £50,000;
- expenditure on defending civil or criminal proceedings in relation to the company or an associated company;
- expenditure on defending regulatory proceedings or defending himself or herself in an investigation by a regulatory authority;
- minor and business transactions, as long as the transactions and any other relevant transaction or arrangement does not exceed £10,000.
What must happen for payments of £200 or more for loss of office?
They require prior agreement of shareholders by ordinary resolution.
Duty to act within powers – s 171 CA 2006
A director of a company must:
(a) act in accordance with the company’s constitution, and
(b) only exercise powers for the purposes for which they are conferred.
Duty to promote the success of the company – s 172 CA 2006
- A director must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.
- If the court is satisfied that the director acted in good faith, even if the court believes that this belief was misguided or that disastrous consequences have resulted from the director’s actions, the director will not be in breach of duty.
Duty to exercise independent judgement – s 173 CA 2006
Directors must exercise independent judgement. This is not infringed by the director acting:
(a) in accordance with an agreement duly entered into by the company that restricts the future exercise of discretion by its directors, or
(b) in a way authorised by the company’s constitution.
Duty to exercise reasonable care, skill and diligence – s 174 CA 2006
Directors must exercise reasonable care, skill and diligence. This means the care, skill and
diligence that would be exercised by a reasonably diligent person with:
(a) the general knowledge, skill and experience that may reasonably be expected of a person carrying out the functions carried out by the director in relation to the
company, and
(b) the general knowledge, skill and experience that the director has
Duty to avoid conflicts of interest – s 175 CA 2006
- Directors must avoid situations in which they have, or can have, a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the company.
The duty to avoid a conflict applies in particular to the exploitation of any property, information or opportunity. - It is important to note that the duty does not apply to a conflict of interest arising in relation to a transaction or arrangement with the company – for this section to apply, it must relate to
a contract in which the company is not involved.
Duty to declare interest in a proposed transaction or arrangement – s 177 CA 2006 (with the company)
- If a director of a company is in any way, directly or indirectly, interested in a proposed transaction or arrangement with the company, they must declare the nature and extent of that
interest to the other directors. - The declaration must be made before the company enters into the transaction or arrangement in question.
