Limited companies: part 2

Question 1

How many directors must a private company have? And how many directors must a public company have?

Answer 1

Private - 1
Public - 2

Question 2

How is a non-executive director appointed?

Answer 2

Under MA17 and done either by an OR or a BR

Question 3

How is an executive director appointed?

Answer 3

Under MA19 and by BR

Question 4

Following the appointment of a director what must the company do?

Answer 4

• Update the register
• File for AP01 within 14 days

Question 5

What are the director’s general duties under s170 - s180 CA

Answer 5

171 - To act within company’s constitution and exercise their powers for the proper purpose
172 - promote the success of the company
173 - exercise independent judgement
174 - exercise reasonable care, skill and diligence
175 - avoid conflicts of interest
176 - not accept benefits from third parties
177 - declare interests in a proposed transaction

Question 6

How can a breach of s175 (conflicts of interest) be authorised?

Answer 6

By a BR although the interested director’s vote will not count

Question 7

When will s176 not be breached?

Answer 7

When the acceptance of the benefit cannot reasonably be regarded as likely to give rise to a conflict

Question 8

How coulda breach of duty be authorised?

Answer 8

Shareholders can ratify a breach of duty by OR but the vote of any interested director who is also a shareholder and those persons connected with will not count

Question 9

When will a director be personally liable to third parties?

Answer 9

Where they have given a personal guarantee or is guilty of wrongful trading, fraudulent trading or misfeasance

Question 10

What is wrongful trading?

Answer 10

Where the company continues to trade, and they knew, or ought to have known that, there was no reasonable prospect of the company avoiding insolvency proceedings

Question 11

What is fraudulent trading?

Answer 11

Where the company carried on business with the intent to defraud creditors or for any fraudulent purposes

Question 12

When does a service contract for executive directors have to be approved by OR?

Answer 12

When it is of a guaranteed fixed term of more than two years

Question 13

Can a director vote and count towards the quorum in a board meeting where their service contract is approved?

Answer 13

No unless MA14 is temporarily disapplied by OR or has been removed

Question 14

Can directors approve substantial property transactions?

Answer 14

No shareholders approval is required by OR

Question 15

What is a substantial property transaction?

Answer 15

The acquisition/disposal of a non-cash asset where:
- the parties involved are the company and a director or a person connected to a director AND
- the asset is substantial so its value is not £5k or less, it is over £100k or it is between the two and exceeds 10% of the company’s net asset value

Question 16

Who is not considered a connected person?

Answer 16

brothers, sisters, grandparents, uncles, aunts, nephews and nieces

Question 17

What happens if there is a breach of s190 (SPT)?

Answer 17

The transaction is voidable

Question 18

When does a loan to a director need to be approved by shareholders in an OR?

Answer 18

When it is more than £10k in total

Question 19

What happens to the transaction is not approved by OR?

Answer 19

It is voidable unless ratified by OR

Question 20

How can a director be removed?

Answer 20

• voluntary retirement/resignation
• removal
• disqualification

Question 21

How can a shareholder remove a director?

Answer 21

Through an OR. Special notice of the OR is required to be given to the company.

Question 22

How many days’ notice needs to be given to the company to remove a director by OR?

Answer 22

at least 28 days otherwise the resolution will be ineffective

Question 23

Can the written resolution procedure be used for shareholders to remove a director?

Answer 23

No because the director has the right to be informed and to make representations against their removal