Directors Duties Flashcards
What are directors and shareholders responsible for?
Directors are responsible for managing the company, while shareholders own the company and have input into certain key decisions.
Who are directors accountable to?
Directors owe duties to the company and are accountable to it rather than directly to the shareholders.
Define the concept of agency relationship in the context of company management.
An agency relationship in company management refers to the directors managing the company on behalf of the shareholders.
List some examples of decisions directors can make without shareholder approval.
Directors can employ individuals, enter contracts, buy and sell property, raise funds, and prepare company accounts.
Describe the 3 categories of directors recognized in law.
The categories of directors recognized in law include de jure directors, de facto directors, and shadow directors.
How are directors categorized in practice?
In practice, directors are categorized as executive directors and non-executive directors.
What additional type of director may the company’s articles include?
The company’s articles may provide for alternate directors.
Explain the difference between de jure and de facto directors.
De jure directors are officially appointed and recognized as directors, while de facto directors act as directors without formal appointment.
What is a shadow director?
A shadow director is a person who is not officially appointed as a director but whose directions or instructions are followed by the actual directors of the company.
What is the minimum age requirement to be appointed as a director under CA 2006?
A person must be at least 16 years old to be appointed as a director.
Do fiduciary duties and liabilities apply to de facto directors?
Yes, fiduciary duties and liabilities apply to de facto directors as they do to de jure directors.
Describe the role of a shadow director according to CA 2006.
A shadow director is defined as a person whose directions or instructions the directors of the company are accustomed to act upon, even if they are not formally appointed as a director.
How does CA 2006 differentiate between shadow directors and professional advisers?
CA 2006 clarifies that professional advisers, such as accountants providing financial advice, are not considered shadow directors, even if their advice is followed by the directors.
What duties and restrictions are shadow directors under?
Individuals acting as directors, regardless of their formal appointment, are subject to the same duties and restrictions that apply to all directors.
How might a friend of a director be classified under CA 2006?
A friend of a director who provides advice that the directors follow could be classified as a shadow director.
Define the role of an executive director.
An executive director is a director appointed to executive office who spends the majority of their working time on the business of the company and serves as both an officer and an employee.
How do non-executive directors contribute to a company?
Non-executive directors provide independent guidance and advice to the board and protect the interests of shareholders, but they do not engage in the day-to-day running of the company.
Explain the employment status of non-executive directors.
Non-executive directors are officers of the company but are not employees, meaning they do not receive a salary or engage in daily operations.
Describe the role of an alternate director in a company.
An alternate director takes the place of a director when one or more directors are absent, usually being a fellow director or someone approved by a board resolution, and possesses the voting powers of the absent director.
How are alternate directors appointed in a company?
Alternate directors are typically appointed through a resolution of the board of directors or may be fellow directors.
What has contributed to the rarity of alternate directors in recent times?
The ability to hold board meetings over the telephone and to pass board resolutions through written resolutions has made the use of alternate directors quite rare.
Describe the main duties of a company secretary.
The main duties of a company secretary include keeping the company books up-to-date, producing minutes of board and general meetings, and ensuring that all necessary filings are made at Companies House.
What is the requirement for a public company regarding a company secretary under CA 2006?
A public company must have a company secretary as per section 271 of CA 2006.
Describe the qualifications required for a public company secretary.
A public company secretary must have the requisite knowledge and experience, and must hold one of the qualifications set out in section 273(2) of CA 2006, such as being a solicitor or a chartered accountant.
Who is responsible for appointing the company secretary?
The directors are responsible for appointing the company secretary.
What is the significance of the secure register for directors’ residential addresses?
The secure register ensures that individual directors’ residential addresses are protected from public access, enhancing their privacy.
What role does the court play in the disqualification of directors under the CDDA?
The court may make a disqualification order against a person, preventing them from being a director or involved in company management unless they obtain leave of the court.
How often are directors of LISTED companies subject to re-election?
Directors of listed companies are subject to annual re-election.
Explain the retirement and reappointment process for directors in public companies.
The model articles for public companies require directors to retire and be reappointed by the members every three years.
What are the grounds for disqualification under the CDDA?
Grounds for disqualification include fraudulent or wrongful trading and persistent breaches of company law.
Define the maximum period of disqualification under the CDDA.
The maximum period of disqualification under the CDDA is 15 years.
Define automatic termination a director’s position.
Automatic termination occurs when a director becomes disqualified, subject to an individual voluntary arrangement, bankrupt, or is deemed physically or mentally incapable of acting as a director by a registered medical practitioner. A registered medical practitioner states in writing that the director has become physically or mentally incapable and will remain so for more than three months.
Describe the process for a director to resign from the board?
A director may resign by tendering a letter of resignation, as provided for in MA 18(f). It is usual for the board to pass a resolution accepting the resignation, although this is not obligatory.
Explain the circumstances under which a director may be removed by shareholders.
A director may be removed by shareholders due to poor performance, personality clashes, or differences in opinion regarding company strategy.
How do directors who are also shareholders participate in the removal of directors?
Directors who are also shareholders are allowed to vote in their capacity as shareholders on the ordinary resolution to remove them.
Does the Board have a role in the removal of a director?
The Board cannot remove a director unless the Articles specifically provide for this.
Define the notice requirement for removing a director under CA 2006.
Under s 168(2) CA 2006, a special notice of 28 days is required for a removal resolution.
How can shareholders remove a director according to CA 2006?
Shareholders can remove a director by passing an ordinary resolution before the expiration of their period of office, as stated in s 168(1) CA 2006.
What is the significance of disclosing compensation for loss of office in annual accounts?
Disclosing compensation for loss of office ensures transparency and accountability regarding the financial dealings and remuneration of directors.
What is the requirement for payments made to connected persons of directors?
Section 412 CA 2006 mandates the disclosure of any payments made to, or receivable by, a person connected to a director or a body corporate controlled by a director.
Describe the information required in the company’s annual accounts regarding directors’ remuneration.
Section 412 CA 2006 requires disclosure of directors’ salaries, bonus payments, pension entitlements, and compensation for loss of office in the company’s annual accounts.
How do companies with Model Articles (MA) typically appoint new directors?
Companies with Model Articles usually appoint new directors by a decision of the directors under MA 17(1)(b), as it is easier to implement.
What information must be included in a company’s register of secretaries according to CA 2006?
The register of secretaries must include the name and any former name, and the address of the individual.
How can a director’s service address be chosen according to CA 2006?
A director’s service address can be their residential address or the company’s registered office, which will be the only address available to the public.
Define the particulars required in a company’s register of directors according to CA 2006.
The particulars include name and any former name, service address, country or state of usual residence, nationality, business occupation, and date of birth.
How can other individuals access the register of directors?
Other individuals can access the register of directors at the registered office by paying a fee, as per sections 162(5) CA 2006.
Explain the inspection rights of members regarding the register of directors.
The register kept at a company’s registered office must be open for inspection by any member of the company without charge.
How must companies notify changes regarding directors or secretaries?
Companies must notify the Registrar of Companies of changes relating to directors or secretaries using forms published by Companies House, such as AP01 for Appointment of Director and AP03 for Appointment of Secretary.
Describe the requirements for maintaining a register of directors according to CA 2006.
Every company must maintain a register of its directors at its registered office as per section 162(1) of CA 2006.
What happens if a director’s service contract is not in writing?
If a director’s service contract is not in writing, the company must keep memoranda of the terms at its registered office for inspection.
Who determines the terms of the service contracting including remuneration?
Article 19 of the Model Articles states that the terms of an individual director’s service contract, including remuneration, are determined by the board.
How are long-term service contracts entered into under the Companies Act 2006?
Shareholder approval is required to enter into long-term service contracts under section 188 of the Companies Act 2006.
Define the obligations of a company regarding directors’ service contracts.
A company is obligated to keep its directors’ service contracts or memoranda of their terms at its registered office for inspection by members.
How should the terms of employment for an executive director be documented?
The terms of employment for an executive director should be documented in a written contract of employment, also known as a service contract.
Describe the role of an executive director in a company.
An executive director is an employee of the company and also one of its officers, responsible for overseeing the company’s operations.
Explain the difference between appointing directors by ordinary resolution and by a decision of the directors.
Appointing directors by ordinary resolution involves the shareholders’ vote (MA 17(1)(a)), while a decision of the directors allows the board to appoint new directors directly (MA 17(1)(b)).
Define the role of ordinary resolution in the appointment of directors.
An ordinary resolution allows shareholders to appoint directors, as outlined in MA 17(1)(a).
How should directors declare any interest in a proposed transaction?
Directors are required to disclose any personal interest they have in a transaction that is being considered by the company.
How is the minimum standard of care for a director determined?
The minimum standard expected of a director is based on the objective expectations of a director in that position, which may be raised subjectively if the director possesses special knowledge, skill, or experience.
How are companies addressing the requirements of s 172 CA 2006 (duty to consider various stakeholders’ interests when making decisions) in their board decisions?
Many companies are ensuring that board minutes clearly note consideration of the s 172 CA 2006 duty, especially for significant commercial decisions, demonstrating adequate research and discussion.
How might directors justify installing a new oil pipeline despite potential environmental damage?
Directors may justify the decision if it promotes the success of the company even if it causes some degree of environmental damage. - Bold text is a fundamental duty of solicitors
Describe the concept of ‘enlightened shareholder value’.
It is a term that represents a balance between maximizing shareholders’ interests and considering the interests of a wider group of stakeholders.
What are the likely long-term consequences a director must consider when making decisions?
A director must consider how decisions will affect the company’s future, including financial performance, stakeholder relationships, and overall sustainability.
What factors should a director consider regarding the community and environment?
A director should consider the impact of the company’s operations on the community and the environment, ensuring that decisions contribute positively and do not harm these areas.
How should a director consider employees’ interests according to s 172(1) CA 2006?
A director must take into account the interests of employees when making decisions, ensuring that their well-being and perspectives are considered in the context of the company’s operations.
Describe the duty of a director under s 172(1) CA 2006.
A director is required to consider a range of non-exhaustive matters, including the long-term consequences of decisions, employees’ interests, relationships with suppliers and customers, the impact on the community and environment, maintaining a reputation for high business standards, and acting fairly among company members.
