Companies: Ownership and Management

Question 1

What are the 7 types of director? madencs

Answer 1

• de facto
• shadow
• alternate
• executive
• non-executive
• chairman
• managing director

Question 2

What is a de facto director?

Answer 2

• acts as director although not validly appointed as one

- become liable as director due to conduct

Question 3

What is a shadow director?

Answer 3

• someone who provides directions or instructions that the other directors act on
• not a shadow director if advice is in a professional capacity

Question 4

What is an alternate director?

Answer 4

• appointed by a director to attend and vote at board meetings
• may be another director or outsider

Question 5

What is an executive director?

Answer 5

• full time employee involved in management

- specific role, e.g. finance director

Question 6

What is an non-executive director?

Answer 6

• part time
• outside expertise
• exerts control over executive directors
• not an employee

Question 7

What is a managing director?

Answer 7

• day to day management of company’s business

Question 8

What is a chairman?

Answer 8

• ensures procedure in meetings is followed

- usually a non-executive director

Question 9

Appointment procedure for a director?

Answer 9

• by existing directors or by ordinary resolution
• plc directors individually voted
• actions valid regardless of defective appointment
• registrar notified in 14 days

Question 10

Why might a director leave office?

Answer 10

• death or company wind up
• removal (ordinary resolution with special notice)
• resignation
• requirement by articles
• disqualification

Question 11

Why might the model articles provide that a director leaves office?

Answer 11

• prohibited by law
• bankruptcy
• composition with creditors in regards to debt
• doctor/court says unfit
• gives notice of resignation

Question 12

Why might a director be disqualified?

Answer 12

• under Company Directors Disqualification Act
• breach of this criminal offence, can lead to lifting of veil meaning director personally liable
• up to 5 years or 15 years

Question 13

What are the types of authority for a director?

Answer 13

• express
• implied
• ostensible

Question 14

What are the duties of a director set out in the companies act?

Answer 14

• to act within powers
• to promote success of company
• to exercise independent judgement
• to exercise reasonable care and diligence
• to avoid conflicts of interest
• not to accept benefits from third parties
• to declare interest in a proposed transaction or arrangement

Question 15

Describe how a director should act within their powers

Answer 15

• act in accordance with company’s constitution and only use powers for the purpose they were given
• if not transaction is void unless approved

Question 16

Describe how a director should promote the success of the company

Answer 16

• act in good faith to promote success of companies and members

Question 17

Describe how a director should exercise independent judgement

Answer 17

Duty not infringed by director acting:

• in accordance with agreement entered with company or
• in a way authorised by companies constitution

Question 18

Describe how a director should exercise reasonable care and diligence

Answer 18

• act with skill, knowledge etc expected from a director

- act with skill they actually have

Question 19

Describe how a director should avoid conflicts of interest

Answer 19

• should be avoided
• if it has been authorised by directors then it is ok
• cannot authorise this themselves

Question 20

What are the consequences of a breach of duties?

Answer 20

• may have to make good on losses
• company may recover property transferred due to breach
• injunction may be granted to stop breach

Question 21

What is fraudulent trading?

Answer 21

• trading with intention to defraud

- criminal offence and civil liability (if insolvent)

Question 22

What is wrongful trading?

Answer 22

• trading knowing insolvency unavoidable
• judged on reasonably diligent directors
• civil liability only

Question 23

What are the rights of the members?

Answer 23

• receive copy of annual accounts
• require directors to call general meeting
• appoint a proxy

Question 24

What are the powers of members?

Answer 24

To approve:

• service contracts >=2 years
• substantial property transactions (over £100,000 or over £5,000 + 10% assets)
• loans to directors
• payments on loss of office

Question 25

What must a member prove when bringing a derivative action on behalf of the company in respect of negligence, breach of duty or breach of trust by a director?

Answer 25

• they are acting in good faith on behalf of the company

- if not court will grant right to bring the claim

Question 26

What must a member prove when bringing a claim for unfairly prejudicial conduct?

Answer 26

• actions of company were negatively affecting rights of members
• court may grant remedy as they see fit

Question 27

When will the court grant an action for just and equitable winding up?

Answer 27

• if no other remedy possible

Question 28

What are the 3 types of meeting?

Answer 28

• annual general meeting
• general meeting
• class meeting

Question 29

When is each meeting held?

Answer 29

• plc’s, yearly within 6 months of y/e
• when requested. plc’s when serious loss of capital
• meeting of holders of class of shares

Question 30

How much notice is required for each meeting?

Answer 30

• 21 days
• 14 days unless 90% agree less
• 14 days

Question 31

What is discussed in each meeting?

Answer 31

• normal business - approving accounts, declaring dividends, appointing directors/auditors
• business set by requestor
• discuss variation in class rights

Question 32

What are the 3 types of resolution and when are they used?

Answer 32

1) Special - >=75% - when articles state they should be used
2) Ordinary - >50% - when special not required by articles
3) Written (ltd only) - same % as GM - any decision apart from removing auditor/director