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Questions and Answers
Directors of a company are considered to be agents appointed by shareholders and bound to serve their interests.
Directors of a company are considered to be agents appointed by shareholders and bound to serve their interests.
False (B)
Public companies are required to have a company secretary, while private companies do not have this requirement.
Public companies are required to have a company secretary, while private companies do not have this requirement.
True (A)
According to the Model Articles, shareholders can use a special resolution to direct directors to take actions they deem necessary.
According to the Model Articles, shareholders can use a special resolution to direct directors to take actions they deem necessary.
True (A)
Model Articles state that directors are completely free and do not need to adhere to the Articles when managing the company's business.
Model Articles state that directors are completely free and do not need to adhere to the Articles when managing the company's business.
The default provisions for decision-making power in a company come solely from the Companies Act 2006.
The default provisions for decision-making power in a company come solely from the Companies Act 2006.
A shadow director is someone who is formally appointed as a director of a company.
A shadow director is someone who is formally appointed as a director of a company.
Directors of a company must all be natural persons, with no provision for legal persons as directors.
Directors of a company must all be natural persons, with no provision for legal persons as directors.
A de facto director is someone who has been validly appointed and appears on the company's register.
A de facto director is someone who has been validly appointed and appears on the company's register.
A person under the age of 16 is legally permitted to be a director of a company.
A person under the age of 16 is legally permitted to be a director of a company.
The powers of directors to bind the company are deemed free of limitations when dealing with third parties in good faith.
The powers of directors to bind the company are deemed free of limitations when dealing with third parties in good faith.
ABC Ltd is presumed to be acting in bad faith because they know the act is beyond the directors powers.
ABC Ltd is presumed to be acting in bad faith because they know the act is beyond the directors powers.
A director can be disqualified for any company for a period not exceeding 15 years under the Company Directors Disqualification Act 1986.
A director can be disqualified for any company for a period not exceeding 15 years under the Company Directors Disqualification Act 1986.
Gia must be informed by the company at least 14 days before the resolution to remove her as a director can be passed.
Gia must be informed by the company at least 14 days before the resolution to remove her as a director can be passed.
Directors have the right to establish weighted voting rights that can affect the removal process under section 168.
Directors have the right to establish weighted voting rights that can affect the removal process under section 168.
The right of protest allows a director to circulate a statement about their removal before the general meeting.
The right of protest allows a director to circulate a statement about their removal before the general meeting.
ABC Ltd is acting in good faith if they verify the directors' powers before proceeding with a contract they know is beyond those powers.
ABC Ltd is acting in good faith if they verify the directors' powers before proceeding with a contract they know is beyond those powers.
Members voting on compensation after a breach of contract by the company is not permitted unless specified in the service contract.
Members voting on compensation after a breach of contract by the company is not permitted unless specified in the service contract.
Directors owe duties exclusively to individual shareholders and are not required to consider the interests of any other stakeholders.
Directors owe duties exclusively to individual shareholders and are not required to consider the interests of any other stakeholders.
Under the Companies Act 2006, former directors are exempt from duties related to conflicts of interest and benefits from third parties.
Under the Companies Act 2006, former directors are exempt from duties related to conflicts of interest and benefits from third parties.
Shadow directors are not subject to the same general duties as regular directors when it comes to company governance.
Shadow directors are not subject to the same general duties as regular directors when it comes to company governance.
Duties owed to the company include the obligation to act in good faith and to promote the success of the company.
Duties owed to the company include the obligation to act in good faith and to promote the success of the company.
An employment relationship between a senior manager and a company inherently establishes a fiduciary relationship that requires full application of directors' duties.
An employment relationship between a senior manager and a company inherently establishes a fiduciary relationship that requires full application of directors' duties.
Under the Insolvency Act 1986, a director can be disqualified for causing a company to keep trading while it is insolvent.
Under the Insolvency Act 1986, a director can be disqualified for causing a company to keep trading while it is insolvent.
Fraudulent trading requires the demonstration of a deliberate intention to defraud creditors.
Fraudulent trading requires the demonstration of a deliberate intention to defraud creditors.
A director who is declared bankrupt automatically loses their right to serve as a director, without any possibility of court intervention.
A director who is declared bankrupt automatically loses their right to serve as a director, without any possibility of court intervention.
The primary source of statutory duties for directors is found in the Companies Act 1986.
The primary source of statutory duties for directors is found in the Companies Act 1986.
Directors only owe their duties to shareholders, excluding the company itself.
Directors only owe their duties to shareholders, excluding the company itself.
A director can avoid disqualification by providing extensive information to the liquidator even if the company becomes insolvent.
A director can avoid disqualification by providing extensive information to the liquidator even if the company becomes insolvent.
Misfeasance involves using a company's assets without permission for personal benefit.
Misfeasance involves using a company's assets without permission for personal benefit.
To prevent wrongful trading, a director must ensure that the company can avoid going into insolvency before it happens.
To prevent wrongful trading, a director must ensure that the company can avoid going into insolvency before it happens.
The duty of care for directors is only addressed within the common law and not through statutory provisions.
The duty of care for directors is only addressed within the common law and not through statutory provisions.
Cumulative effect of duties means that a director can breach one duty as long as they comply with another.
Cumulative effect of duties means that a director can breach one duty as long as they comply with another.
What is the primary responsibility of directors according to the Model Articles?
What is the primary responsibility of directors according to the Model Articles?
Under what conditions can shareholders utilize a special resolution to influence directors' actions?
Under what conditions can shareholders utilize a special resolution to influence directors' actions?
Which statement accurately reflects the relationship between shareholders and directors based on Gramophone and Typewriter Ltd v Stanley?
Which statement accurately reflects the relationship between shareholders and directors based on Gramophone and Typewriter Ltd v Stanley?
Which of the following accurately describes the requirement for a company secretary in different types of companies?
Which of the following accurately describes the requirement for a company secretary in different types of companies?
What defines the term 'director' according to the provided content?
What defines the term 'director' according to the provided content?
Which of the following statements about the appointment of directors is true?
Which of the following statements about the appointment of directors is true?
What distinguishes a shadow director from a de facto director?
What distinguishes a shadow director from a de facto director?
Under which condition can a third party dealing with a company be presumed to be acting in good faith?
Under which condition can a third party dealing with a company be presumed to be acting in good faith?
What is the significance of being classified as a de facto or shadow director?
What is the significance of being classified as a de facto or shadow director?
What is required for shareholders to remove a director from their position?
What is required for shareholders to remove a director from their position?
What is the primary consideration for directors under the enlightened shareholder value principle?
What is the primary consideration for directors under the enlightened shareholder value principle?
Which statement is true regarding a director's duties to individual shareholders?
Which statement is true regarding a director's duties to individual shareholders?
What legal entity is considered the proper plaintiff to seek redress for directors' duties?
What legal entity is considered the proper plaintiff to seek redress for directors' duties?
Under what circumstances can a former director still be held accountable for conflicts of interest?
Under what circumstances can a former director still be held accountable for conflicts of interest?
Which of the following concepts best describes the relationship between directors' duties and the interests of stakeholders?
Which of the following concepts best describes the relationship between directors' duties and the interests of stakeholders?
What must happen for a director to be removed under CA 2006 s168?
What must happen for a director to be removed under CA 2006 s168?
Which of the following is NOT a ground for disqualification under the Company Directors Disqualification Act 1986?
Which of the following is NOT a ground for disqualification under the Company Directors Disqualification Act 1986?
What legal remedy can shareholders pursue if a director has acted beyond their powers?
What legal remedy can shareholders pursue if a director has acted beyond their powers?
Why might weighted voting powers complicate the removal of directors under CA 2006 s168?
Why might weighted voting powers complicate the removal of directors under CA 2006 s168?
What is a consequence of the Company Directors Disqualification Act 1986 for directors found guilty of certain offences?
What is a consequence of the Company Directors Disqualification Act 1986 for directors found guilty of certain offences?
What right does a director have if shareholders wish to remove them according to s169 CA 2006?
What right does a director have if shareholders wish to remove them according to s169 CA 2006?
In the event of a breach of contract by the company, how can directors handle compensation?
In the event of a breach of contract by the company, how can directors handle compensation?
Which of the following accurately describes a situation that can lead to a director being disqualified under the Companies Directors Disqualification Act 1986?
Which of the following accurately describes a situation that can lead to a director being disqualified under the Companies Directors Disqualification Act 1986?
What distinguishes fraudulent trading from wrongful trading under the Insolvency Act 1986?
What distinguishes fraudulent trading from wrongful trading under the Insolvency Act 1986?
Under the Insolvency Act 1986, what is one of the conditions that defines a delinquent director?
Under the Insolvency Act 1986, what is one of the conditions that defines a delinquent director?
Which of the following actions would likely be considered a breach of the duty to promote the success of the company?
Which of the following actions would likely be considered a breach of the duty to promote the success of the company?
What consequence involves the obligation of directors to provide information to and cooperate with the liquidator?
What consequence involves the obligation of directors to provide information to and cooperate with the liquidator?
What does the term 'unfit director' typically encompass?
What does the term 'unfit director' typically encompass?
What characterizes the duty of care owed by directors under the Companies Act 2006?
What characterizes the duty of care owed by directors under the Companies Act 2006?
Which duty is specifically outlined in Section 177 of the Companies Act 2006?
Which duty is specifically outlined in Section 177 of the Companies Act 2006?
What is likely a result of the cumulative effect of directors' duties as described in the Companies Act 2006?
What is likely a result of the cumulative effect of directors' duties as described in the Companies Act 2006?
How does English law define misfeasance in terms of director behavior?
How does English law define misfeasance in terms of director behavior?
Flashcards
Company Directors
Company Directors
Individuals who manage a company's business, exercising the company's powers, subject to the company's articles of association.
Model Articles
Model Articles
Standard rules for companies that dictate how a company is governed, especially in the absence of more specific rules.
Shareholders' Reserve Power
Shareholders' Reserve Power
Shareholders can direct directors on specific actions via a special resolution, but this doesn't undo actions already taken.
Company Secretary
Company Secretary
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Director's Responsibilities
Director's Responsibilities
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De Facto Director
De Facto Director
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Shadow Director
Shadow Director
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Director's Power to Bind Company (s40 CA 2006)
Director's Power to Bind Company (s40 CA 2006)
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Natural Person Director
Natural Person Director
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Disqualified Director
Disqualified Director
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Acting in Bad Faith
Acting in Bad Faith
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Director's Powers
Director's Powers
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What happens when a director acts outside their powers?
What happens when a director acts outside their powers?
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How can shareholders remove a director?
How can shareholders remove a director?
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Weighted Voting Rights
Weighted Voting Rights
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Disqualification of Directors
Disqualification of Directors
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Grounds for Director Disqualification
Grounds for Director Disqualification
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Unfit Director
Unfit Director
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Insolvency Act 1986
Insolvency Act 1986
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Delinquent Director
Delinquent Director
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Fraudulent Trading
Fraudulent Trading
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Wrongful Trading
Wrongful Trading
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Directors' Statutory Duties
Directors' Statutory Duties
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Duty of Loyalty
Duty of Loyalty
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Duty of Care
Duty of Care
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Cumulative Effect of Duties
Cumulative Effect of Duties
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Who owes directors' duties?
Who owes directors' duties?
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Duties owed to company vs. stakeholders
Duties owed to company vs. stakeholders
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Company as the plaintiff
Company as the plaintiff
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Duty to act within powers (s171)
Duty to act within powers (s171)
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Example: Mia's breach
Example: Mia's breach
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Who can be a director?
Who can be a director?
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What is a De Facto Director?
What is a De Facto Director?
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What is a Shadow Director?
What is a Shadow Director?
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What is the significance of being a Shadow or De Facto Director?
What is the significance of being a Shadow or De Facto Director?
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What does S40 CA 2006 say about a director's ability to bind the company?
What does S40 CA 2006 say about a director's ability to bind the company?
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Director Removal Procedure
Director Removal Procedure
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Grounds for Disqualification
Grounds for Disqualification
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Company Directors Disqualification Act 1986 (CDDA 1986)
Company Directors Disqualification Act 1986 (CDDA 1986)
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Duties owed to whom?
Duties owed to whom?
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Enlightened Shareholder Value (ESV)
Enlightened Shareholder Value (ESV)
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What is a shareholder derivative action?
What is a shareholder derivative action?
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Mia's breach of duty
Mia's breach of duty
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Statutory Directors' Duties
Statutory Directors' Duties
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Director's General Authority
Director's General Authority
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Who is a Company Director?
Who is a Company Director?
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Company Secretary's Role (Public vs. Private)
Company Secretary's Role (Public vs. Private)
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What are Model Articles?
What are Model Articles?
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Study Notes
Directors' Appointment and Types
- Company Organs: Two main organs are the board of directors and the general meeting of shareholders.
- Power Distribution: Companies Act 2006 and articles of association dictate power distribution. Model articles, if not altered, apply as per Companies (Model Articles) Regulations 2008. Default decision-making power rests with the board, as per the model articles 3 & 4.
- Directors' Authority (Art 3): Directors manage the company's business, exercising all company powers, subject to articles.
- Shareholder Power (Art 4): Shareholders can direct specific actions through a special resolution, but this doesn't invalidate prior director actions.
- Director-Shareholder Relationship: Directors aren't servants to shareholders; they're entrusted with control, removed only by a statutory majority altering the articles (Gramophone and Typewriter Ltd v Stanley).
- Company Secretary: Not required for private companies, needed for public companies. Someone (director or delegated person) must comply with Companies House deadlines (meetings, minutes & documents).
Director Qualifications
- Who Can Be a Director: A natural person is required, but other legal persons (companies, partnerships) can be directors.
- Who Cannot Be a Director: Bankrupt, disqualified under the CDDA 1986, prohibited by the company's articles, or the company's auditor. Minimum age of 16.
- Residence: Directors don't need to live in the UK.
- Publicity: Company directors are listed on the Companies House register.
Director Appointment
- Appointment Methods (Art 17):
- Ordinary resolution.
- Director decision.
- Remuneration (Art 19): Determined by directors, covering both directorial services and additional services performed for the company.
Director Duties and Powers
- Director Roles: Management of commercial and administrative matters; exercise of powers delegated by shareholders.
- Shareholder Stability: Changing company articles requires a supermajority, providing stability for directors. Shareholder removal of directors is allowed via ordinary resolution (with 28-day notice).
- Types of Directors:
- Executive: Full-time, manage daily operations.
- Non-Executive: Part-time, supervise executive directors.
- Managing Director: CEO.
- De Jure: Legally appointed director (on company register).
- De Facto: Acts as a director without formal appointment; functions were only those a director could undertake.
- Shadow Director: Person whose instructions directors follow, but does not want to be on the register.
Significance of De Facto and Shadow Directors
- Liability: Both are subject to director duties, despite not appearing on the register.
Directors and Third Parties
- Binding the Company (s40 CA 2006):
- Directors' power to bind the company is unrestricted for third parties dealing in good faith.
- Third parties don't have a duty to check if a director's actions are within their powers.
- Example: For a contract, third parties aren't responsible for checking power limits, assuming director has power.
Director Termination
- Reasons for Cessation: Death, dissolution of associated entity, insolvency, contract expiry/breach, incapacity, retirement, dismissal, disqualification.
- Dismissal Procedure (s168):
- Shareholders' ordinary resolution, with 28-day notice to company, followed by company-to-shareholder notice and director notification.
- Right for director to present a statement.
- Payment upon Termination: Generally payment, sometimes contractual, sometimes shareholder-determined.
Director Disqualification
- Company Directors Disqualification Act 1986 (CDDA 1986):
- Disqualification extends up to 15 years.
- Aims to protect the public and promote responsible director conduct.
- Disqualification Grounds:
- Offences related to company formation or management.
- Persistent legal compliance breaches.
- Fraud in winding-up.
- Competition law breaches.
- Fraudulent trading/wrongful trading.
- Bankruptcy.
- "Unfit" Director (s6 CDDA 1986):
- Courts can disqualify "unfit" directors, especially concerning company insolvency and failures in duties. This includes behaviours like avoiding insolvency, drawing excessive salaries, or failures to co-operate with liquidators.
Directors and Insolvency
- Liability: Directors can face personal liability under the Insolvency Act 1986 for misapplications of funds or breaches of directorial duties, particularly during insolvent situations.
Director Duties
- Sources: Statute (Companies Act 2006), common law, equitable principles.
- Categories:
- Fiduciary Duty: Loyalty; avoiding conflicts of interest.
- Duty of Care: Reasonable care, skill, and diligence.
- Duties to Whom? Company as a whole, not individual shareholders or stakeholders.
- "Enlightened Shareholder Value": Directors consider stakeholders' interests to benefit shareholders.
- Enforcement: Only the company can enforce director duties.
Duty to Act Within Powers (s171)
- Consistent with the company's constitution and resolutions.
- Powers must be used for the purpose for which they were granted, not for personal gain or to influence power balances.
Duty to Promote Company Success (s172)
- Act in good faith to promote company success for members; consider long-term impacts on employees, relationships with stakeholders, community/environment, and company reputation; and act fairly between members, though not to disregard shareholders.
Duty to Exercise Independent Judgment (s173)
- Independent judgment required; taking advice does not violate this. Exceptions exist if agreements or company constitution restrict future decisions.
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Description
This quiz explores the roles and powers of directors and shareholders within a company as per the Companies Act 2006. It examines the distribution of authority, the relationship between directors and shareholders, and the implications of company articles. Test your knowledge on the governance structures of corporations!
