Chapter 11 - Directors, Members, and The Division of Powers Flashcards
Identify three places to look for the rules establishing the role of members in the governance of a company.
1 Constitution of the company
2 Statute law (notably CA and IA)
3 Cases recognising member powers
What are the two organs of governance of a company?
The members and directors.
Identify four points supporting the assertion that the members are the ‘residual controllers’ of registered companies.
1 The law requires members to make certain decisions
2 The articles reserve the right for members to direct the board by special resolution
3 If the board cannot act, power reverts to the members
4 Members have the right to remove directors from office.
Why are members less likely to be engaged in listed companies than in closely held companies?
Closely-held companies are owner managed, and listed companies have a much greater separation of ownership from control.
Which model articles allocate powers to the board of directors and the shareholders, and what do those articles state?
Article 3 of both model articles establishes the role of the directors as principle managers of the company. Article 4 establishes a reserve power for shareholders (by special resolution).
What does model article 3 state?
Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company.
What does model article 4 state?
The shareholders may, by special resolution, direct the directors to take, or refrain from taking, specified action.
Who may appoint directors and where is the power to appoint found?
The powers to appoint directors are set out in the articles. There is no statutory provision in the CA for the appointment of directors.
Where does management power reside in a company the board of directors of which is unable to act, and which case established this?
With the members (Barron v Potter, where the 2 directors were refusing to attend a meeting where the other was present, the shareholders were able to appoint a third director).
Does model article 3 vest company powers in individual directors?
No, the articles collectively entrust the board with the management of the company.
Which principle of the UKCGC emphasises the collective nature of board membership?
Principle A.1. - every company should be headed by an effective board, which is COLLECTIVELY responsible for the long-term success of the company.
Where is the power of the board of directors to delegate company powers typically found and to whom is the board permitted to delegate?
Article 5 empowers the directors to delegate any of the powers which are conferred to them to anyone they see fit.
How do you establish who the directors of a company are at any point in time?
CA S 250: someone occupying the position of director, by whatever name called.
What is a de facto director?
Someone behaving openly as a directors without an of the formalities of appointment taking place
Distinguish between a de facto and a shadow director.
A de facto director is somebody carrying out the role of a director, while a shadow director is somebody in line with whose directions the directors of the company are inclined to act.
What is the approach taken by a court to determine whether or not a particular statutory provision is applicable to a de facto or shadow director?
They must interpret the meaning and fact of any statutory provision if they do not expressly refer to shadow or de facto directors.
Compare and contrast executive and non-executive directors.
An ED is a director with extensive executive powers due to their role within the company, and who usually has service contract. An NED is a director who typically does not have an employment contract o any executive responsibilities.
