Company Law Overview: Directors & Shareholders
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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.

False

Public companies are required to have a company secretary, while private companies do not have this requirement.

True

According to the Model Articles, shareholders can use a special resolution to direct directors to take actions they deem necessary.

True

Model Articles state that directors are completely free and do not need to adhere to the Articles when managing the company's business.

<p>False</p> Signup and view all the answers

The default provisions for decision-making power in a company come solely from the Companies Act 2006.

<p>False</p> Signup and view all the answers

A shadow director is someone who is formally appointed as a director of a company.

<p>False</p> Signup and view all the answers

Directors of a company must all be natural persons, with no provision for legal persons as directors.

<p>False</p> Signup and view all the answers

A de facto director is someone who has been validly appointed and appears on the company's register.

<p>False</p> Signup and view all the answers

A person under the age of 16 is legally permitted to be a director of a company.

<p>False</p> Signup and view all the answers

The powers of directors to bind the company are deemed free of limitations when dealing with third parties in good faith.

<p>True</p> Signup and view all the answers

ABC Ltd is presumed to be acting in bad faith because they know the act is beyond the directors powers.

<p>False</p> Signup and view all the answers

A director can be disqualified for any company for a period not exceeding 15 years under the Company Directors Disqualification Act 1986.

<p>True</p> Signup and view all the answers

Gia must be informed by the company at least 14 days before the resolution to remove her as a director can be passed.

<p>False</p> Signup and view all the answers

Directors have the right to establish weighted voting rights that can affect the removal process under section 168.

<p>True</p> Signup and view all the answers

The right of protest allows a director to circulate a statement about their removal before the general meeting.

<p>True</p> Signup and view all the answers

ABC Ltd is acting in good faith if they verify the directors' powers before proceeding with a contract they know is beyond those powers.

<p>True</p> Signup and view all the answers

Members voting on compensation after a breach of contract by the company is not permitted unless specified in the service contract.

<p>False</p> Signup and view all the answers

Directors owe duties exclusively to individual shareholders and are not required to consider the interests of any other stakeholders.

<p>False</p> Signup and view all the answers

Under the Companies Act 2006, former directors are exempt from duties related to conflicts of interest and benefits from third parties.

<p>False</p> Signup and view all the answers

Shadow directors are not subject to the same general duties as regular directors when it comes to company governance.

<p>False</p> Signup and view all the answers

Duties owed to the company include the obligation to act in good faith and to promote the success of the company.

<p>True</p> Signup and view all the answers

An employment relationship between a senior manager and a company inherently establishes a fiduciary relationship that requires full application of directors' duties.

<p>False</p> Signup and view all the answers

Under the Insolvency Act 1986, a director can be disqualified for causing a company to keep trading while it is insolvent.

<p>True</p> Signup and view all the answers

Fraudulent trading requires the demonstration of a deliberate intention to defraud creditors.

<p>True</p> Signup and view all the answers

A director who is declared bankrupt automatically loses their right to serve as a director, without any possibility of court intervention.

<p>False</p> Signup and view all the answers

The primary source of statutory duties for directors is found in the Companies Act 1986.

<p>False</p> Signup and view all the answers

Directors only owe their duties to shareholders, excluding the company itself.

<p>False</p> Signup and view all the answers

A director can avoid disqualification by providing extensive information to the liquidator even if the company becomes insolvent.

<p>False</p> Signup and view all the answers

Misfeasance involves using a company's assets without permission for personal benefit.

<p>True</p> Signup and view all the answers

To prevent wrongful trading, a director must ensure that the company can avoid going into insolvency before it happens.

<p>True</p> Signup and view all the answers

The duty of care for directors is only addressed within the common law and not through statutory provisions.

<p>False</p> Signup and view all the answers

Cumulative effect of duties means that a director can breach one duty as long as they comply with another.

<p>False</p> Signup and view all the answers

What is the primary responsibility of directors according to the Model Articles?

<p>To manage the company’s business and exercise powers granted by the articles</p> Signup and view all the answers

Under what conditions can shareholders utilize a special resolution to influence directors' actions?

<p>To force directors to follow shareholder instructions on specific management matters</p> Signup and view all the answers

Which statement accurately reflects the relationship between shareholders and directors based on Gramophone and Typewriter Ltd v Stanley?

<p>Directors can be dispossessed of control only by a statutory majority altering the articles</p> Signup and view all the answers

Which of the following accurately describes the requirement for a company secretary in different types of companies?

<p>Public companies are required to have a secretary, while private companies have the option to appoint one</p> Signup and view all the answers

What defines the term 'director' according to the provided content?

<p>Any person in the position of director, regardless of their official title or designation</p> Signup and view all the answers

Which of the following statements about the appointment of directors is true?

<p>Any person willing to act as a director and permitted by law may be appointed by ordinary resolution.</p> Signup and view all the answers

What distinguishes a shadow director from a de facto director?

<p>A shadow director operates behind the scenes and does not claim to be a director.</p> Signup and view all the answers

Under which condition can a third party dealing with a company be presumed to be acting in good faith?

<p>If they do not feel the need to inquire about the directors' powers.</p> Signup and view all the answers

What is the significance of being classified as a de facto or shadow director?

<p>They can be held liable for directors' duties despite not being on the public register.</p> Signup and view all the answers

What is required for shareholders to remove a director from their position?

<p>An ordinary resolution with at least 28 days notice to the director in question.</p> Signup and view all the answers

What is the primary consideration for directors under the enlightened shareholder value principle?

<p>Promoting the success of the company while considering stakeholders' interests.</p> Signup and view all the answers

Which statement is true regarding a director's duties to individual shareholders?

<p>Directors may owe fiduciary duties to individual shareholders only in special relationships.</p> Signup and view all the answers

What legal entity is considered the proper plaintiff to seek redress for directors' duties?

<p>The company itself as a whole.</p> Signup and view all the answers

Under what circumstances can a former director still be held accountable for conflicts of interest?

<p>They remain accountable for duties regarding conflicts and benefits from third parties.</p> Signup and view all the answers

Which of the following concepts best describes the relationship between directors' duties and the interests of stakeholders?

<p>Directors owe duties to the company while considering stakeholders' interests.</p> Signup and view all the answers

What must happen for a director to be removed under CA 2006 s168?

<p>The resolution must be passed at a general meeting with 28 days' notice.</p> Signup and view all the answers

Which of the following is NOT a ground for disqualification under the Company Directors Disqualification Act 1986?

<p>Falling into personal insolvency.</p> Signup and view all the answers

What legal remedy can shareholders pursue if a director has acted beyond their powers?

<p>They can challenge the contract made by the director in court.</p> Signup and view all the answers

Why might weighted voting powers complicate the removal of directors under CA 2006 s168?

<p>It may allow directors to exert more influence during voting.</p> Signup and view all the answers

What is a consequence of the Company Directors Disqualification Act 1986 for directors found guilty of certain offences?

<p>They may be disqualified from acting as directors for up to 15 years.</p> Signup and view all the answers

What right does a director have if shareholders wish to remove them according to s169 CA 2006?

<p>The right to circulate a statement against their removal.</p> Signup and view all the answers

In the event of a breach of contract by the company, how can directors handle compensation?

<p>Shareholders must vote on the compensation amount if not specified.</p> Signup and view all the answers

Which of the following accurately describes a situation that can lead to a director being disqualified under the Companies Directors Disqualification Act 1986?

<p>Continuing to trade while knowing the company is insolvent.</p> Signup and view all the answers

What distinguishes fraudulent trading from wrongful trading under the Insolvency Act 1986?

<p>Fraudulent trading requires proof of deliberate intention to defraud.</p> Signup and view all the answers

Under the Insolvency Act 1986, what is one of the conditions that defines a delinquent director?

<p>Misappropriation of the company's assets.</p> Signup and view all the answers

Which of the following actions would likely be considered a breach of the duty to promote the success of the company?

<p>Diverting company funds to personal investments.</p> Signup and view all the answers

What consequence involves the obligation of directors to provide information to and cooperate with the liquidator?

<p>Formal disqualification from future directorships.</p> Signup and view all the answers

What does the term 'unfit director' typically encompass?

<p>Directors who have breached specific legislation or obligations.</p> Signup and view all the answers

What characterizes the duty of care owed by directors under the Companies Act 2006?

<p>Directors are required to exercise reasonable care, skill, and diligence.</p> Signup and view all the answers

Which duty is specifically outlined in Section 177 of the Companies Act 2006?

<p>Duty to avoid conflicts of interest.</p> Signup and view all the answers

What is likely a result of the cumulative effect of directors' duties as described in the Companies Act 2006?

<p>A breach of any duty may trigger disqualification.</p> Signup and view all the answers

How does English law define misfeasance in terms of director behavior?

<p>Using company assets for personal benefit without permission.</p> Signup and view all the answers

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!

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