3): The Interests, Rights, Obligations and Power Stakeholders in a Business Flashcards
(36 cards)
[Stakeholders – Directors’ Duties] What statutory duties do directors owe under ss.171–177 CA 2006?
2 parts
Key Duties:
✅ Act within powers
🚀 Promote company success
🧠 Use independent judgment
🤝 Fiduciary duties: trust, good faith, loyalty
If Breached, Remedies May Include:
💰 Account for profits
🏠 Return company property
⚖️ Equitable compensation
🔁 Rescission of contract
⛔ Injunction to prevent future breach
[Stakeholders – Directors’ Authority and Classification] What powers and types of directors does a company typically have?
3 parts, last part longer
- Appointment:
✅ Must have at least one director
- Regulated Transactions:
🏠 Property deals, 📄 service contracts, etc., involving directors are regulated
- Types of Directors:
👔 Executive – involved in daily management
🎯 Non-Executive – oversight role
🕴️ Shadow – not appointed but board acts on their instructions
[Stakeholders – Appointment of Directors] What are the key rules for appointing directors?
4 steps
📄 Initial directors appointed via Form IN01
📌 Subsequent appointments:
By Board Resolution (BR) or Ordinary Resolution (OR)
Must file Form AP01 at Companies House
👤Director must be:
-At least 16 years old
-Not disqualified
-Not bankrupt or unfit (per Art 18)
📅Director service contracts >2 years:
Require approval by Ordinary Resolution
-❗ If not approved, must be terminable on reasonable notice
[Stakeholders – Removal of Directors] What is the process for removing a director?
4 parts
📝 Director may resign by giving notice
🗳️ Removal by Ordinary Resolution (s.168 CA 2006):
-📅 Requires special notice (≥28 days before GM)
-❌ No written resolution allowed
-📬 Copy of notice must be sent to director
🗣️ Director can:
Submit written representations
Speak at the GM
⚖️ Bushell v Faith clause may protect via weighted voting
🗂️ File Form TM01 at Companies House (within 14 days)
[Directors’ Duties – s.174 CA 2006] What is the duty to exercise reasonable care, skill, and diligence?
Must meet both standards (apply the higher):
📏 Objective: What a reasonably diligent person would do in the role
🧠 Subjective: Based on the director’s actual knowledge, skill & experience
Ensures directors act competently and carefully
[Directors’ Duties] What is the duty to avoid conflict of interest under s.175 CA 2006?
🚫 Director must avoid actual or potential conflicts with company interests
🔍 Applies to both direct and indirect interests
❗ Applies even if the company cannot take advantage of the opportunity
🕒 Duty continues after leaving office for info gained as a director
[Directors’ Duties] What is the duty not to accept benefits from third parties under s.176 CA 2006?
- A director must not accept a benefit from a third party:
-Because he is a director, or
-For doing (or not doing) anything as a director.
- Covers corporate hospitality.
- May be permitted under Articles or approved by shareholders.
[Directors’ Duties] What is the duty to declare interest in a proposed transaction under s.177 CA 2006?
Director must declare nature and extent of any interest in a proposed transaction
⏰ Declaration must be made before the company enters the contract
🚫 Under Model Article 14(1):
-Director cannot vote or count in quorum on the matter unless exceptions apply
[Board Decision-Making] How can directors make decisions as a board?
✅ Decisions made via:
-Board meetings, or
-Written resolutions (signed by all eligible directors)
At meetings, resolutions passed by majority or unanimously
📅 Any director may call a meeting with prior notice (Model Articles)
[Board Decision-Making] What are the requirements for calling a board meeting?
Notice must state:
Date, time, place.
Means of communication if not all in same location.
[Board Decision-Making] What is the quorum for a board meeting under Model Articles?
Minimum of two directors
[Board Decision-Making] When may a director be excluded from quorum or voting?
🚫 Director cannot vote or count in quorum if there’s a conflict of interest under s.177 CA 2006
❗Unless:
✅ An exception applies
✅ The company disapplies the article by ordinary resolution
✅ The conflict is not reasonably likely to arise
[Board Decision-Making] What are the voting rules for directors?
-One vote per director.
-Resolutions may be passed by majority or unanimity.
[Board Decision-Making] What role does the Chairperson play in board meetings?
-Has control of the meeting and agenda.
-May be appointed by board members.
-Has a casting vote in event of a deadlock.
[Board Decision-Making] How long must board meeting minutes be retained?
10 years.
[Restrictions on Directors] What are the restrictions on the duration of a director’s service contract?
⏳ Must not exceed 2 years unless approved by ordinary resolution
👀 Members have the right to inspect service contracts
📂 Contracts must be available for inspection for 12 months after expiry
[Restrictions on Directors] What constitutes a Substantial Property Transaction with a director?
Company buys/sells big asset with director or connected person
🗳️ Needs ordinary resolution from members
💰 “Substantial” =
≥10% of assets and > £5,000, or
Over £100,000
👥 Connected = spouse, partner, children, parents (❌ not siblings)
⚠️ No approval = contract voidable, director must repay losses
5 parts
[Restrictions on Directors] What must be done to approve a loan to a director?
🚫 Company cannot (without member approval) do any of the following if > £10,000:
💷 Make a loan
🛡️ Give a guarantee
🔐 Provide security for a loan
[Restrictions on Directors] What restrictions apply to payments for loss of office?
-Payments > £200 require prior member approval via OR
-Excludes redundancy payments, unfair or wrongful dismissal compensation
[Shareholders’ Rights] What are the key rights and liabilities of shareholders?
Liability = limited to unpaid amount on shares
❌ No personal liability for company debts
📜 Constitution = contract between company and members
⚖️ Shareholders can sue for breach of articles
🗳️ Decisions made by majority vote
[Minority Protection – Just & Equitable Winding Up] How can a shareholder seek to wind up the company under s.122(1)(g), IA 1986?
⚖️ Must show it’s just and equitable to wind up
🔚 Ends company’s life + distributes remaining assets
🚫 Not granted if another remedy exists and is unreasonably avoided
✅ s.994 CA 2006 (unfair prejudice) is usually preferred
[Minority Protection – Unfair Prejudice] What constitutes unfair prejudice under s.994 CA 2006?
🚫 Company’s conduct unfairly prejudices a member’s interests
📝 Member can petition the court for relief
📌 Examples include:
-Being excluded from management
-Excessive director pay
-Not paying dividends without justification
[Minority Protection – Derivative Claims] What are derivative claims under ss.260–264 CA 2006?
🧑⚖️ Member sues on behalf of the company (e.g. director breach of duty)
💼 Company benefits, not the individual member
✅ Two-stage court test:
-Prima facie case shown
-If passed, move to full hearing
[Shareholder Rights] What rights do shareholders have regarding share certificates and registration?
-Receive share certificate within 2 months
-Be listed in register of members
