Shareholders and Directors Flashcards
What are the two types of directors?
Executive
Non-executive
What is an executive director?
They have an employment contract with the company known as a service agreement.
Involved in the day-to-day running of the company.
What is a non-executive director?
They are not involved in the day to day running and are not employees of the company.
They do partake in votes to prevent poor and biased decision-making.
What is a de facto director?
Someone who acts as a director although they have never been appointed.
They will carry out the job of a director.
What is a shadow director?
A person who has significant influence over the company’s affairs but has not been formally appointed as a director.
How can a sole director make decisions?
They are not required to call board meetings hence why they can make decisions.
Can a director appoint an alternative director to attend and vote in their absence at a board meeting?
Only if there is a special article in the articles as the Model Articles do not allow for it.
How can a new director be appointed?
Which is the quickest option?
They can be appointed by the board or by an ordinary resolution of the shareholders.
The quickest will be a board meeting.
What are the restrictions on directors?
They cannot take office if they are disqualified.
They will cease to be a director if a bankruptcy order has been made against them.
They will cease to be a director if a doctor gives a written opinion stating they are physically or mentally incapable of acting as a director for more than three months.
What is the administrative procedure when a new director is appointed?
Notify Companies House within 14 days of the appointment.
Update the register of directors and register of directors’ residential addresses.
What are the two types of authority that directors have?
Actual authority
Apparent authority
What is actual authority?
Where a director has authority from other directors to act in a certain way.
This can be express or implied.
What is apparent authority?
Where a director acts without the company’s prior consent, but it still binds the company to the contract.
What are the requirements for apparent authority?
When the transaction is related to the business carried out by the firm
The partner in the firm would usually act on such matters
The other party did not know they didn’t have authority to act
The other party deals with a person who they know or believe to be a partner
What happens if there is no apparent or actual authority with a decision?
The director is personally liable.
When must a director’s service contract be approved by shareholders?
Where there is a guaranteed term of more than two years (i.e. notice to terminate for two years).
Can a director who is the subject of the service contract vote in the board meeting?
No - they will not count in quorum.
This is per the Model Articles. This can be amended.
What is the administrative procedure to approve a service contract?
A copy of the memorandum setting out the terms must be kept at the registered office for 15 days and at the general meeting itself.
How long must directors’ service contracts be kept for inspection by shareholders?
During the term and until a year after termination.
They have a right to inspect without charge within seven days of a request.
How can a directorship end?
A director can resign.
A director can be removed.
How can a director resign?
They should complete the TM01/TM02 form within 14 days of resignation.
How can a director be removed?
Shareholders can remove by a director by ordinary resolution, but special notice is required.
Once special notice has been received by the company, it must inform the director and give 14 days notice of the general meeting.
What is special notice in respect of removing a director?
Notice of intention which is given to the company at least 28 days before the general meeting.
What are the director’s rights when there are proposals to remove them?
To represent themselves in front of the shareholders.
If they are also a shareholder, they have a right to vote against their own removal.
What is a Bushell v Faith clause?
Where someone is a shareholder and a director, and as a result will have greater voting powers as a shareholder when voting to remove that person as a director.
What are director’s duties? (7)
To act within powers
To promote the success of the company
To exercise independent judgement
To exercise reasonable skill and care
To avoid conflicts of interest
To not accept benefits from third parties
To declare an interest in a proposed transaction for arrangement
Can a director infringe their duty to avoid conflicts if they are authorised by the directors?
If a board resolution is passed, but the director in question does not count in the quorum for the vote.
What happens if a company disapplies the MA to declare an interest?
There is still a duty to declare under the CA.
What are the exceptions to a director declaring an interest?
If the director is not aware
If the interest cannot reasonably give rise to a conflict
If the other directors are aware
If it concerns the terms of a director’s service contract
What happens if a company enters into a contract where there is a conflict and the director still does not declare their interest?
There may be a criminal offence committed.
What are the civil consequences of a breach of directors’ duties?
Account of profits
Equitable compensation
Rescission of contracts
Injunctions
Negligence claim for a breach of reasonable care and skill
How can a breach of directors’ duties be ratified?
By ordinary resolution
Can a director in breach vote as a shareholder to ratify a breach?
No, neither in written resolution or at the general meeting.
What claims can be taken against directors of insolvent companies?
Wrongful trading (where a director knew there was no prospect of the company avoiding insolvency)
Fraudulent trading (business is carried on with intent to defraud creditors)
Misfeasance (breach of fiduciary duty)
What is a substantial property transaction?
A director/someone connected with a director
buys from or sells to the company
a non-cash asset
of substantial value (over £100,000 or more than £5,000 AND 10% of the company’s value)
What is required to enter into a substantial property transaction?
Ordinary resolution
Can a company make a loan to a director?
By ordinary resolution, yes.
If it relates to expenditure defending proceedings in relation to the company, or defending themselves as long as they do not exceed £10,000.
What actions can minority shareholders take against directors?
Derivative action - taking action for a breach of a director’s duty, but the remedy will go to the company.
Unfair prejudice - directors not declaring dividends
Just and equitable winding up - selling off assets and winding up the company.
What should be sent to HMRC after a stock transfer form has been executed and when should this be done?
The stock transfer form should be sent to HMRC with payment of stamp duty within 30 days of the effective date of transfer.
The stamp duty should be paid by the purchaser