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Members, directors, company secretary and auditors (Directors (Termination…
Members, directors, company secretary and auditors
Members
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Companies Act 2006 provides that the company's constitution binds the company and its members as though they had individually covenanted to obey their provisions
The articles of association constitute a contract between the company and its members and between the members themselves
Their rights and obligations of the members depend upon the type of share that they hold in the company
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Directors
Described by Companies Act 2006 as 'any person occupying the position of director, by whatever name called'
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Private company must have at least one director, public company must have at least two
Appointment of directors
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Model articles state that any person willing to act as and who is permitted by law to do so may be appointed by ordinary resolution of the shareholders or by a decision of the directors
De Jure Director: One who has been formally appointed to a company and whose particulars are recorded in the register of directors
De Facto Director: Where a person has not been formally appointed as a director but nevertheless fulfils the role
Individuals who make and implement significant decisions on behalf of the company and act as if they are directors may be deemed as de facto directors
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Still fulfils the function of a director but the board IS NOT accustomed to act in accord with their directions or instructions
Companies Act 2006 provides that a person may not be appointed unless they have attained 16 years of age
Shadow directors
Defined by Companies Act 2006 as a person in accordance with whose directions or instructions the directors of the company are accustomed to act.
Companies Act 2006 sets out that a person is not to be regarded as a shadow director by reason only that the directors act on their advice given by the shadow director in a professional capacity (eg taxation / legal advice)
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Shareholders with large shareholdings or beneficiaries of underlying trusts can become shadow directors if they exert significant influence over the directors to the extent that the directors become accustomed to act in accordance with their instruction
Alternate directors
Articles may provide for the directors to appoint an alternate director to attend directors' meeting on their behalf when they are unable to
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Used to be popular in offshore centres, but less common due to increase of use in corporate directors
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Executive Directors: those with executive responsibilities and involved with the day to day running of the company
Non-executive directors: A director who is not involved with the day-to-day activities of the company and who can bring an independent view o the board of directors
Companies Act 2006 specifies that companies are required to have at least one director who is a natural person
The requirement for companies to have at least one director who is a natural person is not present in offshore centres
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Powers
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Model articles give the directors a general authority to exercise 'all the powers the company' for the purposes of fulfilling their responsibility to manage the company's business
Companies Act 2006 states that the power of the directors to bind the company, or authorise others to do so, is deemed free of any limitation under the company's constitution
Directors do not incur personal liability while acting in their capacity as a director. However they can become personally liable for example if they act outside their authority
Directors duties
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Companies Act 2006 sets out the general duties that are owed by a director of a company to the company
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Companies Act 2006 shares that the general duties shall be interpreted and applied in the same way as common law rules or equitable principles and regard shale had to the corresponding common law rules and equitable principles in interpreting them
7 Directors Duties
Duty to act within powers: A director of a company must act in accordance with the company's constitution, and only exercise powers for the purposes for which they are conferred.
Duty to promote the success of the company: A director must act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole and in doing so have regard for to-
-Likely consequences of any decisions in the long term
-Interests of the company's employees
-Need to foster the company's business relationships with suppliers, customers and others
-Impact of the company's operations on the community and the environment
-Desirability of the company maintaining a reputation for high standards of business conduct
-Need to act fairly as between members of the company
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Duty not to accept benefits from third parties: A director must not accept a benefit from a third party because of their position as a director unless the benefit could not reasonable be regarded as likely to give rise to a conflict of interest
Duties to avoid conflicts of interest: A director has a duty to avoid a situation in which they have a direct or indirect interest that conflicts with the interests of the company
Duty to declare interest in proposed transaction or arrangement: If a director of a company is directly or indirectly interested in a proposed transaction in any way, they must declare the nature and extent of that interest to the other directors
Duty to exercise reasonable care, skill and diligence:A director must exercise reasonable care, skill and diligence This is considered to be that which would be exercised by a reasonably diligent person with the general knowledge, skill and experience that may be reasonably expected of a person carrying out the functions
Company Secretary
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In offshore centres, it is usual for the service provider or one of its subsidiaries to act as a corporate secretary
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Register of secretaries
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Must be kept at the company's registered office or at a place if the company has given notice to the registrar
Must be open to inspection to any member of the company free of charge, or by any other person on payment of such fee as may be prescribed
May be liable with the company directors for penalties arising as a result of non-compliance with the Companies Act 2006
Secretaries duties
Registrar functions, including the maintenance of the statutory registers of the company
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Ensuring that meetings are quorate and conducted in accordance with Companies Act 2006 and the articles
Ensuring the company meets the requirements of the Companies Act 2006 and any other relevant requirements (eg those of the stock exchange)
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Auditors
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Their report usually expresses an opinion as to whether the financial statements have been prepared in accordance with the requirements of Companies Act 2006 and other relevant legislation
Their report must also state that the company's financial statements give a true and fair view of the company's finances if this is the case
All companies, except those exempt or dormant (as defined under Companies Act 2006) must appoint an auditor
Private companies may resolve to not appoint one if they reasonably resolve that audited accounts are unlikely to be required
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Duties of auditors
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In order to prepare their report, they have a duty to carry out investigations that will enable them to give their opinion. If unable to do so, they may state this in their report
Owed to the members, not its directors or creditors
Auditor's rights
General right to access company's, books, accounts and vouchers at all times
May require certain officers of the company to provide them with information or explanation as the think necessary for the performance of their duties
Entitled to receive all notices of and other communications relating to any general meeting which a member of a company is entitled to receive
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