Company Directors Flashcards
Chapter 3
What is the minimum number of directors a private company must have?
A private company must have at least one director. At least one director must be a natural person (human being) who is sixteen years of age or older.
What is a corporate director?
A corporate director is a director which is a company and not a natural person. A corporate director must send a corporate representative to board meetings. The Small Business, Enterprise and Employment Act 2015 may change this requirement in the future, requiring all directors to be natural persons.
What is the role of a chairperson?
The chairperson runs the company’s board meetings and has a casting vote at board meetings. The chair of a publicly traded company also acts as a figurehead in dealings with shareholders and anyone outside the company.
What is a de facto director?
A de facto director is a person who acts as a director without being formally appointed. De facto directors can fall within the definition of director under s 250(1) of the CA 2006 or the IA 1986.
What is a shadow director?
A shadow director is someone who is not formally appointed but whose directions or instructions the directors of the company are accustomed to follow. A shadow director may be a major shareholder, lender, or management consultant.
What is the difference between executive and non-executive directors (NEDs)?
Executive directors have an employment contract with the company, while non-executive directors do not, and instead receive directors’ fees. NEDs are more common in public companies.
How are directors typically appointed?
Directors can be appointed by the board or by ordinary resolution of the shareholders. The quickest method is usually by board resolution.
What are the two types of authority a director can have?
A director can have actual authority (express or implied) or apparent authority. Actual authority comes from the company’s consent, and apparent authority is based on a representation by the company that the director is authorized.
What is a director’s service contract?
A director’s service contract sets out their job title, duties, responsibilities, salary, benefits, and notice period. Service contracts with a guaranteed term of more than two years must be approved by shareholders.
How can a directorship be ended?
A directorship can be ended by resignation or removal by the shareholders via ordinary resolution. Removing a director does not automatically terminate their service contract. Special notice is required for a resolution to remove a director.
What are the key notification requirements for directors?
Companies must keep a register of directors, notify Companies House of appointments and resignations, and keep a register of directors’ residential addresses. Some of these requirements will change when the relevant provisions of ECCTA 2023 come into force.
To whom are directors’ duties owed?
Directors’ duties are owed to the company itself, not to the shareholders or creditors. A company itself will usually make any claim against a director for a breach of duty.
What is the duty to act within powers (s171 CA 2006)?
A director must act in accordance with the company’s constitution and only exercise powers for the purposes for which they are conferred. A director acting to promote their own interests rather than the company’s is a breach of this duty.
What is the duty to promote the success of the company (s172 CA 2006)?
A director must act in a way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole. Directors must consider a range of factors, including the long-term consequences of decisions, the interests of employees, and the impact on the environment. The court will apply a subjective test.
What is the duty to exercise independent judgement (s173 CA 2006)?
Directors must make decisions independently and not be influenced by other loyalties.
This duty is not infringed if the director is acting in accordance with an agreement duly entered into by the company or authorized by the company’s constitution.
What is the duty to exercise reasonable care, skill and diligence (s174 CA 2006)?
Directors must act with the care, skill, and diligence expected of a reasonably diligent person with their general knowledge and experience.
This includes both the general knowledge expected of someone in their role and their specific knowledge and experience.
What is the duty to avoid conflicts of interest (s175 CA 2006)?
Directors must avoid situations where they have a direct or indirect interest that conflicts, or may possibly conflict, with the interests of the company.
The duty applies in particular to exploiting property, information, or opportunities.
What is the duty not to accept benefits from third parties (s176 CA 2006)?
A director must not accept a benefit from a third party conferred by reason of them being a director or doing anything as a director.
Normal corporate hospitality may be acceptable, provided it does not give rise to a conflict of interest.
What is the duty to declare an interest in a proposed transaction or arrangement (s177 CA 2006)?
Directors must declare any direct or indirect interest in a proposed transaction or arrangement with the company to the other directors before the company enters into it.
There are some exceptions, such as when the director is unaware of the interest or if the other directors already know.
What are the consequences for breaching director duties (ss171-177 CA 2006)?
Consequences include an account of profits, equitable compensation, rescission of contracts, injunctions, or restoration of property.
What is the process for ratification of a breach of a director’s duty?
Shareholders can ratify a breach or potential breach of a director’s duty by ordinary resolution.
The director in question cannot vote if they are also a shareholder.
What is the duty to declare an interest in an existing transaction or arrangement (s182 CA 2006)?
A director who has an interest in a transaction that the company has already entered into must declare that interest to the other directors.
What is wrongful trading?
Wrongful trading occurs when a director knew or ought to have concluded that there was no reasonable prospect of the company avoiding insolvent liquidation, but did not take steps to minimize potential losses to creditors.
What is fraudulent trading?
Fraudulent trading occurs when a company’s business is carried on with intent to defraud creditors or for any fraudulent purpose. It is a criminal offence
