Directors' Duties and Powers

Question 1

Powers of Directors: From where do the Directors derive their powers?

Answer 1

In the UK, the Directors derive their powers from its Articles of Association. Articles typically delegate wide powers to Directors otherwise decisions would be left to shareholders majority vote which is impractical, particularly to listed companies with thousands of shareholders.

Question 2

What is the ‘general management clause’?

Answer 2

Article 3 of the CA2006 Model Articles for Public limited companies states “Subject to the Articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise allthe powers of the company.”

The directors must exercise these powers collectively (not individually), unless they are allowed under the Articles to delegate those powers to an individual director/someone else.

Question 3

Where can the general management clause be subject to limitations?

Answer 3

1. An objects clause which limits the powers of the company (e.g. if the objects clause limits the type of business a company can do, the directors would be in breach of s171 if they decided to do business in an area not covered by the objects clause);
2. An article imposing a specific limit on the directors powers (e.g. a borrowing limit);
3. An article allowing the members to give directions to the directors;
4. A sharehders agreement which requires shareholder approval for certain types of decisions; and
5. The Companies Acts or other rules and regulations - which often impose a requirement for shareholder approval and may impose procedural conditions.