Stakeholders (Shareholders and Directors)

Question 1

what are directors’ duties under ss. 171-177 CA 2006?

Answer 1

Duty to act within powers

Duty to promote the success of the company

duty to exercise independent judgment

duty to exercise reasonable care and skill

duty to avoid conflict of interest

duty not to accept benefits from third parties

duty to declare interest in proposed transaction or arrangement

Question 2

what are the remedies for breach of director’s duties?

Answer 2

-director to account for profits

-director to return company property

-payment of equitable compensation

-rescission of a contract

-injunction against director

Question 3

if a director breaches their duties, who can take action against them?

Answer 3

the company (not the shareholders) as directors owe their duties to the company.

Question 4

what is included on Form IN01 on incorporation?

Answer 4

first directors named and appointed

Question 5

how to appoint subsequent directors?

Answer 5

MA 17 procedure is followed and Form AP01 filed.

Question 6

what must be verified on appointment of a new director?

Answer 6

the identity of all directors.

Question 7

a director must be:

Answer 7

at least 16 years old

not disqualified

not bankrupt

not physically or mentally incapable of being director.

Question 8

what is required to approve a service contract of a guaranteed term of more than 2 years granted to a director?

Answer 8

an ordinary resolution

Question 9

how can a director be removed?

Answer 9

board of directors can dismiss a director by majority vote at board meeting

members can also remove director through ordinary resolution

File form TM01 at CH.

Question 10

how does the board of directors take decisions?

Answer 10

through board meetings by passing board resolutions (unanimous or majority decision)

or by written resolution (without holding a board meeting).

Question 11

what must a director do before calling a BM?

Answer 11

give notice to the other directors

Question 12

what is the quorum for a BM for a company with MAs?

Answer 12

two directors

Question 13

when can a director be allowed to count in the quorum for a BM?

Answer 13

if specified exception to MAs applies

if company disapplies the article by OR.

or if it cannot reasonably be regarded as giving rise to a conflict of interest.

Question 14

how does voting work at a BM?

Answer 14

each director has one vote and all resolutions passed by unanimity or majority vote.

Question 15

what happens in the event of a deadlock?

Answer 15

the negative view will prevail unless chairperson uses their casting vote to carry the resolution through.

Question 16

what is the restriction on director’s service contracts?

Answer 16

it may not exceed two years unless approved by OR.

Question 17

what is needed to approve a substantial non-cash asset transaction between director (or connected person) and the company?

Answer 17

prohibited unless approved by OR of the members or are conditional on member approval.

Question 18

what is a substantial non-cash asset?

Answer 18

• under 5K is not a substantial non-cash asset

-over 100k is a substantial non-cash asset

• if it is over 5k but under 100k then if it exceeds 10% of company’s net asset value then it will be a substantial non-cash asset.

Question 19

what can a company NOT do without an OR of the shareholders?

Answer 19

make a loan to a director of over 100k (in aggregate)

give a guarantee or provide security for a loan to a director

Question 20

how does payment for loss of office work?

Answer 20

payments exceeding 200 pounds require prior approval of the shareholders by OR.

Question 21

what is the liability extent for shareholders?

Answer 21

liability is limited to paying the agreed price for their shares

no personal liability for the company’s debts

Question 22

what powers do the shareholders have through the vote?

Answer 22

100% - control of the company

75% - pass special resolution

more than 50%- pass ordinary resolution

more than 25% - block a special resolution

50% - block ordinary resolution

Question 23

how can the shareholders consent or refuse to short notice of a GM?

Answer 23

consent - 90% of votes required

refusal - more than 10% of votes required

Question 24

what is required to call a poll vote?

Answer 24

10% or more of the shareholder votes

Question 25

how can a member apply to wind up the company?

Answer 25

affected member must be able to show that it is ‘just and equitable’:

to end the company’s life

AND

distribute remaining assets (after debts paid) to the shareholders.

Question 26

how would a member apply for unfair prejudice?

Answer 26

if a member feels that the company’s affairs are being handled in a manner which is unfairly prejudicial to the interests of members

AND

has a right to petition the court for a remedy.

Question 27

how are derivative claims brought?

Answer 27

brought by a member for an actual proposed omission involving:

negligence, default, breach of duty or trust, by a director.

Question 28

Which director payments are required to be included in company accounts?

Answer 28

• the directors’ salaries, bonus payments and pension entitlements; and 💰
• loss of office payments 🪑❌
• connected person payments 👥
• controlled company payments 🎩🏭
• loans 💳

Question 29

What do directors need to disclose?

Answer 29

The nature and extent of their interest

Question 30

What are the conditions for a private company not associated with a public company to make a loan to its director?

Answer 30

Must be first approved by the shareholders by ordinary resolution.

Question 31

What is the guarantee in a long-term service contract?

Answer 31

• Long-term service contracts guarantee employment or compensation for early termination unless dismissed for misconduct.

•	Contracts exceeding two years require shareholder approval 

•	Early termination may entitle directors to compensation for the unexpired term.

Question 32

What happens if a company approves a long-term contract without the necessary approval?

Answer 32

• the part of the contract exceeding 2 years will be invalid, and
• the contract will be deemed to contain a term entitling the company to terminate it at any time by the giving of reasonable notice.

Question 33

What is the process to pass an ordinary resolution for a long-term contract by GM or Written resolution?

Answer 33

GM
a memorandum setting out the proposed contract must be made available for inspection by members of the company both:

a) at registered office not less than 14 clear days before date of the GM; and

b) at the GM itself.

WRITTEN RESOLUTION
- memorandum with proposed contract sent out with WR
- There is no 15-day requirement for a written resolution.

Question 34

What happens if there is a substantial property transaction with the company that should have sought approval but didn’t?

🏡

Answer 34

The transaction is voidable 🗑️ at the instance of the company unless:

(a) restitution is no longer possible, ❌
OR
(b) the company has been indemnified for the loss or damage suffered by it, 💰
OR
(c) rights acquired in good faith by third party would be affected by the avoidance. 😇