F Management, Administration and Regulation of Companies

Question 1

Directors of a company definition and types

Answer 1

Directors include any person occupying the position of director and this decision is base on their function rather than title. Must be aged at least 16:

De jure director
A person who is legally appointed as director in accordance with the articles of association of the company

De facto director
Not a de jure director but performs the acts or duties of a director, legally deemed a de facto director

Shadow director
A person who performs the function of a director, while evading responsibilities and potential liabilities of a formal director

Executive director
Performs a specific role under a service contract likely to be full time employee involved in management

Non executive director
Part time and often not an employee, brings outside expertise to the board and exerts control over executive directors

Question 2

Appointment of directors procedure including service contracts

Answer 2

Appointment:

First directors
Public companies need a min of 2, private companies need 1

Appointment procedure
Appointed by existing directors or by ordinary resolution, public company directors generally are voted on

Model articles for public companies
At first agm all directors retire and offer themselves for re election by ordinary resolution
Each AGM one third retire and can be re elected

Publicity
Must notify companies house of any changes

Service contracts
Cannot exceed 2 years unless approved by shareholders by ordinary resolution
Directors must prepare remuneration report for each director during the year

Compensation for loss of office
Gratuitous payments must be disclosed to all members and approved by ordinary resolution

Question 3

Disqualification of directors procedure

Answer 3

Disqualification:

Model articles state directors must vacate their office if they become bankrupt

Company directors disqualification act 1986:

Introduced to prevent misuse of the limited liability by directors setting up new companies over old companies with unpaid debts

A disqualified director cannot be concerned in the management of a company and cases for disqualification include

General misconduct in management of any company with persistent breaches

Unfitness to be concerned in the management of a company
Fraud or bankruptcy

Question 4

Removal of directors reasons for and procedure

Answer 4

Removal:

A company by ordinary resolution could remove a director if there is an agreement in place or if its set out in articles, despite any provision to the contrary in a service contract

Special notice is required to the director, all members are entitled to vote, an ordinary resolution is needed for removal

Question 5

What are the powers and authority which directors hold

Answer 5

Powers:

The division of power within a company is between the board of directors who manage day to day, and the members who make major decisions about the running of the companies business in a general meeting

The power to manage the business is given to the board as a whole rather than individually

There are some restrictions where power is placed in the hands of members where some actions require a resolution, if a director is to be removed, and altering articles by passing a special resolution

The control of directors:

Although day to day management is in control of directors, a company is ultimately controlled by its members as most decisions require a majority of over 50%

Statutory control over directors:

Certain matters require the approval of the members in a general meeting in order to be valid such as directors service contracts and substantial property transactions (if an asset exceeds 100k or 10% of company asset value), loans/non contractual payments to directors

Authority of directors:

At common law individual directors cannot bind the company without being given authority to do so
3 ways that authority can be given is express, implied e.g. from a persons position, apparent/ostensible e.g. where a third party acts on such a representation

Question 6

Duties of directors and breaches procedure

Answer 6

General duties;

A fiduciary duty is imposed on certain persons because of the position of trust and confidence they are in

A director must only use their powers for the purpose they were given, and have a fiduciary duty to exercise their powers bona fide in the interests of the company

Breach of directors duties:

Directors owe their duties to the company as a whole not to individual members

Any provision to exempt a director from any liability for beaches of duty is void

The company can ratify a breach of duty by passing an ordinary resolution

Question 7

Company secretary duties and appointment procedure

Answer 7

Company secretary:

Every public company must have a qualified secretary, ltd companies are not obliged to

They must have held the office of secretary in a plc for at least 3 of the 5 preceding years

Or they must be qualified as a solicitor, barrister or accountant
Their duties are not statutory but whatever the board decides, usually checking documentation, making returns to registrar, minutes of meetings

Secretary has authority to bind the company in contract by both express authority delegated by the board, and implied authority regarding contracts of an admin nature

Question 8

Auditors duties and appointment procedure

Answer 8

The auditor:

Must be part of a recognised accounting body, and must not be an employee or partner of an employee of the company

Auditors will be appointed by shareholders ordinary resolution
There are audit exemptions for companies with turnover under 10m or net assets under 5m or under 50 employees - these exemptions do not apply to public companies

An auditor can resign at any time, and the company must inform the registrar

The auditor can be removed by ordinary resolution passed at a general meeting, they are then required to make a statement and deposit it with the company explaining circumstances surrounding the departure

Duties are to report to members whether the accounts given are true and fair, and have been properly prepared, if dissatisfied they must qualify the audit report.

Question 9

Types of company meetings called - procedure for calling and conducting

Answer 9

AGM
Must be held within 6 months of financial year end
Failure to hold results in a fine
Private companies are not required to hold an agm
Notice of meeting is required and business must cover accounts, directors, dividends
Members holding at least 5% voting rights have the right to propose resolutions for agm agenda

General meetings
Held whenever required, notice of 14 days
The person who requisitions the meeting sets the agenda, often held if a loss of capital has occurred

Class meetings
Meeting of a class of shareholders, usually to discuss variation of their class rights

Calling and conducting meetings:

The articles delegate power to directors to call a meeting
Members may require directors to call a GM if they hold at least 5% of paid up voting capital and meetings must take place within 28 days

Resigning auditors may require a meeting the explain reasons for resignation

Court can call a meeting on application of a director or member where it would otherwise by impracticable

Question 10

Types of resolutions

Answer 10

Resolutions are the way in which companies take decisions voted by members there are 3 types;

Special - 75% majority needed, could be to alter name, wind up company, alter articles or reduce share capital

Ordinary - 50% majority used when the law or articles do not require a special resolution

Written - same majority as required in GM, purpose can be anything apart from resolutions requiring special notice, date of resolution is when majority has been reached generally must be within 28 days