Question (1a) Directors’ duties are to act within powers, promote success of company and avoid conflict of interest. Tracey had breached her contract as a director of the business. Under Companies Act (CA) 2006, this act places directors’ duties on a statutory basis although there are common law rules we can also refer to and further guidance can be gained via the case law. Directors’ duties are enforceable in the same way as any other fiduciary duty owed to a company by its directors and remedies available may include: damages or compensation where the company has suffered loss; restoration of the company’s property; an account of profits made by the director; and rescission of a contract where the director failed to disclose an interest. It should be noted that the previous does not apply to the duty to exercise reasonable care, skill and diligence under s.174, which is not considered to be a relating to the relationship between a trustee and the person or body for whom the trustee acts duty. Section 175 of the Act specifically deals with the duty to avoid conflicts of interest. The section makes clear that a conflict of interest may, in particular, arise when a director makes personal use of information, property or opportunities belonging to the company. Directors do have the option to approve a conflict of interest under s.175, and this preserves the ability of the members of a company to authorise conflicts that would otherwise be a breach of this duty. Applying the rules to the facts of the problem scenario it can be seen that Des has beached his statutory duty under CA 2006 s.175 by allowing a conflict of interest to arise without declaring it to the board and getting the approval of the other directors or indeed the m... ... middle of paper ... ...start up or if the business will have large debts. Bibliography Business Gateway: Legal structures: the basics, 2014, Business Gateway: Legal structures: the basics, [ONLINE] Available at: http://www.bgateway.com/starting-up/form-a-company-or-business/legal-structures-the-basics/#page-1291 [Accessed 04 April 2014] Choose a legal structure for a new business, GOV.UK. 2014. Choose a legal structure for a new business, GOV.UK. [ONLINE] Available at: https://www.gov.uk/business-legal-structures/limited-company [Accessed 04 April 2014] Ewan McKendrick, 2011, Contract Law (Palgrave Macmillan Law Masters), 9th Revised Edition, Palgrave Macmillan Kaplan, 2011, ACCA Complete Study Text: F4 Corporate and Business Law CL (Eng) Edition, Kaplan Publishing Sarah Riches, 2013, Keenan and Riches' Business Law Premium Pack, 11th Revised Edition, Pearson Education Limited
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As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
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[7] Cavendish Lawcards Series (2002) Company Law (3rd edn), p.15 [8] [1976] 3 All ER 462, CA. [9] Griffin, S. (1996) Company Law Fundamental Principles (2nd edn), p.19 [10] [1990] Ch 433. [11] Lecture notes [12] Lecture notes [13] [1939] 4 All ER 116.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.