Directors and Officers Flashcards
What are directors?
Officers of the company
What are directors responsible for?
Day-to-day management of the company
How many directors must a private company have?
1
How many directors must a public company have?
2
Where is the procedure for appointing directors set out?
In the company’s articles of incorporation
What is a de jure director?
One who has been properly and formally registered with Companies House
What is a de facto director?
One who has not been properly and formally appointed. Despite this they and the company hold them out to be a director
What is a shadow director?
They regularly influence the decision making of the director(s).
What are executive directors?
Responsible for the day-to-day running of the company and are employees of the company
What are non-executive directors?
Usually consultants and take more of a supervisory role overseeing the activity of the executive directors
What is an alternate director?
someone appointed by a director to attend and vote at board meetings when the director is unable to attend
What is a nominee director?
Nominee director is appointed to the board to represent the interests of a particular stakeholder, usually a shareholder
Must still act in best interests of the company
Where are directors powers derived from?
the articles
What powers do the model articles give directors?
Power to exercise all of the powers of the company except where the articles specifically provide otherwise
What powers do the model articles give shareholders?
Shareholders may direct the directors to take or refrain from taking certain action by passing a special resolution
Can a board of directors delegate their powers?
Yes
What is a company decision called?
A resolution
What type of decisions often require shareholder approval?
Those relating to transactions in which a director has a financial interest
What is the significance of directors being agents for the company?
They can bind the company in contract or for liability in tort if they act with actual or implied authority
What is actual authority?
Powers expressly granted to a director either in the articles or by resolution
What is apparent / ostensible authority?
Principal’s words or conduct would lead a reasonable person in the third party’s position to believe that the agent was authorised to act, even if the agent had no such authority
What could happen if a director breaches their duties?
Made to compensate the company for losses
Account to company for any profit gained
Is it possible for shareholders to ratify a director breach? if so, how?
Yes
By ordinary resolution
if the director is also a member their vote would be disregarded
Does a director have a fiduciary duty to the company?
Yes
Can a provision in the articles protect the director from liability?
No
Can the liability of a director extend beyond their term?
Yes
What does it mean that a director can only act within their powers?
They must act in accordance with the articles and exercise powers only for the purpose that they were conferred
What does the duty to promote the success of the company entail?
Must act in good faith in the interests of the company - considering:
Consequence of decision in long term
Interests of employees
Business relationships with other stakeholders
Community and environment
High standards of business conduct
What must the company do if it is at risk of insolvency?
Act in the interests of creditors over the interests of shareholders
What is the duty to exercise independent judgement?
self -explanatory
Does not apply to situations where director has power to delegate
What is the duty to avoid conflicts of interest?
Avoid direct and indirect conflicts of interest.
Applies to any exploitation of property, information, or opportunity
What are the 3 instances when is a duty to avoid conflicts of interest not breached?
(1) a transaction with the company itself and the board knows the director has an interest
(2) the situation cannot reasonably be regarded as likely to give rise to a conflict of interest
(3) the matter has been authorised by the directors
What is the duty not to accept a benefit from a third party?
benefit conferred by reason of being a director, or doing (or refraining from doing) something as director
What is the exception to the duty not to accept a benefit from a third party?
Where the benefit cannot be reasonably be regarded as likely to give a conflict of interest
When does a director have a duty to declare?
When they have an interest in a proposed transaction or arrangement
What method can a director declare an interest?
By written notice, general notice, or oral notice at a meeting of the directors
Notice must include nature and extent of interest
Under the model articles, is a director with an interest counted towards the quorum?
No
Can a company give a loan to a director?
Yes - only if approved by the members
How is a meeting called under the model articles?
By giving reasonable notice of the meeting to the other directors or by authorising the company secretary (if there is one) to give notice
If the meeting concerns the removal of director it must be 28 days’ notice
What is the contents of the notice calling a meeting?
Proposed date, time, and location
Notice of a meeting must be given to all directors unless they have waived this right for particular meetings
Is it possible to hold electronic meetings?
Yes
How are decisions at board meetings decided?
Under model articles by majority vote. Chairman has casting vote if there is a tie.
What is the quorum under the model articles?
2
What is a written resolution?
Decision made by shareholders not at a general meeting
What is the requirement for a written resolution?
Unanimous decision of directors
Who has the power to remove a director?
The shareholders under Companies Act 2006
What majority is required to remove a director?
Simple
What notice is required to remove a director
28 days before a general shareholders meeting
What rights does a director facing removal have?
Right to speak at shareholders meeting
Right to make a written representation to the meeting
What is retirement by rotation in a Plc?
At first AGM all directors must retire.
The shareholders then vote on their reappointment
What act regulates the disqualification of directors?
Company Directors Disqualification Act 1986 (CDDA)
What can a director be disqualified for?
General misconduct in connection with companies
What is ‘general misconduct’?
Conviction of an indictable offence in connection with the promotion, formation, management, liquidation, or striking off of a company
Persistent breaches of companies’ legislation requiring any return, account, or other document to be filed with the Registrar of Companies
Fraud
Summary conviction of an offence in contravention of, or failure to comply with, any provision of the companies’ legislation requiring a return, account, or other document to be sent to the Registrar
How long can a director be disqualified for under ‘unfitness’?
15 years
Does a public company need a company secretary?
Yes
What act concerns disqualification for wrongful trading?
Insolvency Act 1986
Also covers an undischarged bankrupt
What Act governs company secretaries?
Companies Act 2006
Who usually appoints/removes a company secretary?
The directors
What does a company secretary do?
maintaining the books and records of the company, taking minutes at shareholder and board meetings, and making sure the company is in compliance with its statutory obligations
What does a company auditor do?
Prepares the accounts
What companies don’t require an auditor - what is the metric?
Small companies - less than £10 million in turnover and fewer than 50 employees
