Directors Flashcards
What roles do directors and shareholders play in the daily operations of a company?
Directors handle the day-to-day operations by making business decisions and entering into contracts. Shareholders, generally uninvolved in daily tasks, may occasionally authorize specific actions the board proposes. Some shareholders are also directors, but when acting as directors, they must prioritize company interests over personal interests as shareholders.
What are the legal requirements for appointing directors in a company under CA 2006?
All companies must have at least one director (s 154(1) CA 2006), with public companies requiring at least two (s 154(2) CA 2006). Each company needs at least one natural person as a director (s 155(1)), aged sixteen or older (s 157), though additional directors can be either natural persons or corporate entities.
How does the Small Business, Enterprise and Employment Act 2015 impact corporate directors?
The SBEEA 2015 adds s 156A to CA 2006, requiring all directors to be natural persons, though the Secretary of State may make exceptions for corporate directors. This provision, intended to increase transparency and accountability, is expected to take effect soon, pending further legislative updates.
What are the different types of directors, and what distinguishes executive from non-executive directors?
Directors can be executive (with a service contract and active management role) or non-executive (NEDs) who generally advise without day-to-day responsibilities. Executive directors, often having specialized roles (e.g., finance or HR), are employees, whereas NEDs, more common in public companies, are external advisors who receive fees but not salaries.
What is the role of a chairperson in a company, and what unique power does the chair hold at board meetings?
The chairperson presides over board meetings, ensuring order and facilitating discussions. The chair has a casting vote (MA13) in the event of a tie, allowing them to decide the outcome of a resolution if the board is evenly split. The chair also typically presides over general meetings if present.
How are de facto and shadow directors defined, and what distinguishes their roles from formally appointed directors?
De facto directors act as directors without official appointment, performing director duties. Shadow directors, however, influence board decisions from the background without direct involvement in daily operations. Both types are often treated as directors under CA 2006 provisions, especially when determining liability.
How does a sole director operate under the Model Articles when there is no quorum?
While MA11 requires a quorum of two for board meetings, MA7(2) allows a sole director to make decisions independently without a formal meeting, enabling companies with only one director to function without quorum-related issues.
What is an alternative director, and under what circumstances might one be appointed?
An alternative director acts as a substitute for a director unable to attend a board meeting, following the absent director’s instructions. The Model Articles do not provide for alternative directors, so companies wishing to allow substitutes must include a special provision in their articles.
What are the administrative requirements following the appointment of a new director?
Companies must notify Companies House of a new director within 14 days (s 167(1)(a) CA 2006) using form AP01 (for individuals) or AP02 (for corporate directors). Additionally, the director’s details must be added to the company’s register of directors and residential addresses.
How are directors appointed post-incorporation, and what is the fastest method?
After incorporation, directors are appointed either by the board or by ordinary shareholder resolution (MA 17). Appointment by board resolution is faster, as it avoids the need for a general meeting or a written resolution. However, if other resolutions are being circulated, the board may add the director appointment resolution for shareholder input.
What restrictions exist on who can serve as a director, and how does MA 18 address disqualification?
Disqualified individuals, those declared bankrupt, or deemed physically or mentally unfit for a three-month period (under MA 18) cannot serve as directors. Specific conditions and professional or legal issues can bar an individual from holding office, and these are outlined in the company’s articles.
What is the significance of a director’s service contract, and under what conditions does it require shareholder approval?
A director’s service contract details their responsibilities, authority, and benefits. Service contracts guaranteeing terms over two years require shareholder approval by ordinary resolution (s 188 CA 2006) to avoid locking the company into potentially burdensome, long-term obligations without recourse.
How can shareholders remove a director, and what is the purpose of “special notice”?
Shareholders may remove a director by ordinary resolution with special notice (s 168 CA 2006). Special notice, given 28 days before the meeting, allows the company to inform the director, providing them time to prepare a defense or seek advice. The director has a right to present arguments against removal at the meeting.
What is a Bushell v Faith clause, and how does it affect a shareholder’s voting rights in director removal?
A Bushell v Faith clause, often found in a company’s articles, increases a shareholder-director’s voting power when their removal is proposed. This provision can grant them multiple votes, making it more challenging for other shareholders to remove them from the board.
What are the notification requirements for directors regarding company records and registers?
Companies must maintain a register of directors, including personal details (s 162 CA 2006), and a separate register for residential addresses (s 165). Changes to director particulars require forms CH01 and CH02. Additionally, appointing or removing directors mandates filing AP01/AP02 and TM01/TM02 forms within 14 days.
How does actual authority differ from apparent authority in the context of a director’s actions?
Actual authority is the explicit or implied consent given by the board for a director’s actions, often outlined in the service contract. Apparent authority, however, binds the company to a contract based on the company’s representation to a third party, even if the board did not expressly authorize the action, protecting third parties from company-internal discrepancies.
Under what conditions might a director’s service contract be voidable if it lacks shareholder approval?
If a service contract with a guaranteed term over two years lacks shareholder approval, the guaranteed term is void but the rest of the contract remains valid. This means the director may be terminated with reasonable notice, preventing the company from being locked into a potentially harmful long-term financial obligation.
What responsibilities do companies have concerning director service contracts under s 228 and s 229 CA 2006?
Companies must keep director service contracts or a summary memorandum at the registered office for inspection during their term and for one year post-termination. Shareholders can inspect these without charge, ensuring transparency in director compensation and terms of service for investor protection.
What are the procedures and implications for ending a directorship through resignation or dismissal?
When a director resigns, they must file form TM01 (for individuals) or TM02 (for corporate directors) with Companies House within 14 days. Dismissal by the company, however, does not automatically end the director’s service contract, which must be terminated according to its terms unless the director has committed a repudiatory breach allowing for summary dismissal. A well-drafted service contract may authorize the company to complete form TM01 on the director’s behalf.
What is the primary purpose of directors’ duties, and to whom are they owed?
Directors’ duties aim to prevent misuse of their power and ensure accountability for the company’s welfare. These duties are owed to the company itself—not to individual shareholders or creditors. If there’s a breach, the company, represented by the board, may initiate claims, although shareholders can act in certain cases through derivative actions.
What does the “Duty to Act Within Powers” under s 171 CA 2006 require of directors?
Directors must act according to the company’s constitution (primarily the articles of association) and only exercise powers for their intended purpose, focusing on promoting the company’s success rather than personal gain. Misusing powers for personal interests is a breach of this duty.
What is required under the “Duty to Promote the Success of the Company” (s 172 CA 2006)?
Directors must act in good faith to promote the company’s success for its members’ benefit. They must consider long-term impacts, employee interests, relationships with stakeholders, community/environmental impact, business conduct reputation, and fairness between members, using a subjective test for assessment.
What does the “Duty to Exercise Independent Judgment” (s 173 CA 2006) entail?
Directors must make independent decisions unless restricted by a valid company agreement or authorized by the constitution. This duty encourages directors to avoid undue influence and consider each decision on its own merits.
Explain the “Duty to Exercise Reasonable Care, Skill, and Diligence” (s 174 CA 2006).
Directors are expected to demonstrate the care, skill, and diligence of a reasonably diligent person with comparable knowledge, skill, and experience, factoring in both general expectations and the specific director’s capabilities.
