Ownership and Management

Question 1

What is a Director?

Answer 1

Every person occupying the position or fulfilling the role of Director.

Question 2

What is a de facto director?

Answer 2

Anyone who acts as one but isn’t appointed. Anyone who becomes one through their conduct (implied authority)

Question 3

What is a de jure director?

Answer 3

A person who has been appointed following the correct legal procedure (could be laid out in articles of association)

Question 4

What is a shadow director?

Answer 4

Not a director anymore but who still gives out instructions that the directors follow.

Question 5

What is an alternate director?

Answer 5

The alternate director is someone appointed by the real directors to act on their behalf.

Question 6

What is an executive director?

Answer 6

Someone who is employed full time and has a specific role e.g marketing or finance.

Question 7

What is a non-executive director?

Answer 7

Works part time. Is outside the company and brings outside expertise. Exerts control over the directors.

Question 8

What is a Managing Director?

Answer 8

The Board delegates the management role to this individual.

Question 9

What is a chairman?

Answer 9

Usually a non-exec director and they are required to make sure that the meetings are run properly.

Question 10

How are Directors appointed?

Answer 10

By ordinary resolution or the other Directors. Once they are appointed they have all the power to do as the others do, unless their appointment was faulty. PLC should vote in each Director.

Question 11

How soon must the registrar be told about appointments?

Answer 11

14 days of the appointment.

Question 12

How are Directors removed?

Answer 12

Ordinary resolution with 28 days special notice.

Question 13

How must Directors exercise their power?

Answer 13

In accordance with the company constitution.

Question 14

What can members tell the Directors to do?

Answer 14

They can instruct on the managing and running of the business. Once they have delegated they have no power to tell the Board how to make decisions. The company and the shareholders are separate and the Directors are running the company.

Question 15

What limitations does the CA 2006 impose on Directors?

Answer 15

Only use powers for the purposes they have been given for.

Question 16

For what actions must Directors get a special or ordinary resolution to do?

Answer 16

Altering the articles of association. Reducing the share capital - doing this is difficult and requires approval.

Question 17

What does having restrictions in the articles do?

Answer 17

Limits the powers the Directors can use. Not many companies have these restrictions.

Question 18

How can members restrict the power of the Directors?

Answer 18

Ordinary resolution and get them removed. Special resolution and change the articles to limit the power - basically stop them in their tracks.

Question 19

What does S40 CA2006 say?

Answer 19

The directors have the power to bind the company and this is not limited by the company constitution provided the other party is acting in good faith and doesn’t know they shouldn’t bind but is taking advantage of an attempt to anyway. Even when they do know there still needs to be proof they aren’t acting in good faith.

Question 20

When are S40 transactions voidable?

Answer 20

When the third party is also a director or a person associated with a director. This makes it voidable. If this happens any parties involved in authorising are required to compensate the company for profit/loss.

Question 21

What does s171 of the CA say?

Answer 21

Directors must act within their power and only use them for the purposes given.

Question 22

What does s172 of the CA say?

Answer 22

Directors must act in good faith and work to promote the success of the company. Must consider consequences and the interests of all related parties in a company when making choices. Have to do everything with reasonable care/skill/diligence.

Question 23

What does s173 of the CA say?

Answer 23

They must exercise independent judgement.

Question 24

What does s174 of the CA say?

Answer 24

The standard expected of a director is that of a reasonably diligent person. What would a director reasonably be expected to know. What are their actual knowledge and skills.

Question 25

What does s175 of the CA say?

Answer 25

The Director must work to avoid conflicts of interest and not put themselves in decisions where their interests will overlap. Can sometimes be the case that these occur and the directors approve it but in this case they must not vote or count towards quorum

Question 26

What does s176 of the CA say?

Answer 26

The Director must not accept any benefit from a third party, unless acceptance could not be construed as giving rise to a conflict of interest.

Question 27

What does s177 of the CA say?

Answer 27

A Director must always declare any interests they have in proposed transactions or arrangement.

Question 28

What happens when a directors duty is breached?

Answer 28

The breach may be ratified if there is a good explanation for it. They may have to pay. The contracts can be rendered void. They may get an injunction. They may have to give anything back.

Question 29

What does S232 say?

Answer 29

You can’t indemnify directors against liability for breach.

Question 30

What are the rights of the members?

Answer 30

To be sent copies of the annual accounts and reports. To require the Directors to call a general meeting. To appoint a proxy to act to exercise their rights (alternate director). To vote at a meeting of members.

Question 31

What do members have to approve?

Answer 31

Service contracts of two or more years. Substantial property transactions - over 100k or 10% of co assets and more than 5k. Loans to Directors - requires a written memorandum setting out all the details. Payments for loss of office (anything not in the contract) - written memorandum dealing all the payments and how it will work.

Question 32

When do they not have to get approval for loans to directors?

Answer 32

Minor transactions. Things in the course of the business. Where the business is in money lending. When the transaction is intra group.

Question 33

What remedies can any member seek?

Answer 33

A court order to prevent the pay out of capital and the registration of limited to unlimited.

Question 34

What remedies can a less than 5% voting rights member seek?

Answer 34

They can force the inclusion of resolutions on to the agenda and require a GM be held.

Question 35

What remedies can a less than 15% voting rights member seek?

Answer 35

A cancelling of the variation of share class rights. Different to what they originally got in to it with.

Question 36

What remedies can less than 25% voting rights members seek?

Answer 36

They can stop the altering of a name, articles, a reduction in share capital and the winding up of a company.

Question 37

When a wrong is done to a company who is the rightful claimant?

Answer 37

The company.

Question 38

What is a derivative claim?

Answer 38

A member, with the permission of the courts, brings a claim on behalf of the company against a director for a breach. The courts consider whether there was good faith, whether the company is pursuing the claim, whether the member could just pursue this in their own right.

Question 39

When will the courts deny derivative claims?

Answer 39

If the act of the director was ratified or if a person who was acting to promote the success of the company would not bring the same claim. If the permission for the claim is granted the court may not follow through if they believe the director in question acted honestly and reasonably.

Question 40

What is the situation surrounding prejudicial conduct?

Answer 40

Members can apply to the court if they thing that the affairs of the company have been conducted in a manner unfairly prejudicial to the interest of the members. Unfairly prejudicial includes failure to pay dividends. Improper allotment of shares. Diverting business opportunities.

Question 41

What are the remedies for prejudicial conduct?

Answer 41

Authorising court action. Regulating the conduct of the company’s affairs in the future. Ordering the company to perform a certain act.

Question 42

How can a minority shareholder get the company wound up?

Answer 42

By proving that there is no other suitable remedy and that it would be just and equitable to do so. Would happen if company would be illegal. There isn’t confidence in management. There is a deadlock in management.

Question 43

What is meeting procedure?

Answer 43

Quorate. Voting done by show of hands. Use of proxy if required - not all have to attend. Poll can be demanded by 10% of voting rights members.

Question 44

What is the meeting procedure for single member companies?

Answer 44

No notice. No minutes. Must have a full written record of any decisions made and retain these for 10 years.