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Board Authority - Coggle Diagram
Board Authority
s.40
Does not bestow authority upon the directors to enter into certain contracts - it merely provides that if they act outside their constitutional authority the contract cannot be set aside due to this lack of authority
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Does not prevent the right of a member to bring proceedings to restrain an act that is beyond the power of the directors. A member is empower to apply for an injunction preventing the directors from engaging in an act that is beyond their powers
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Where a director enters into a contract on behalf of the company with himself, then that directors will usually be unable to rely on s.40. S. 41 provides that where the validity of a transaction is dependent upon s40 then that transaction will be voidable at the company's instance if the transaction is between the company and
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Any director who authorised such a transaction is liable to account for any gain he has made directly or indirectly by the transaction and to indemnify the company for any loss or damage resulting from the transaction
Indoor management
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The rule provides that third parties that deal with the company can assume that the company's internal rules have been complied with
Limitations
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the rule will not apply where the third party has been put on notice that the company's internal rules have not been complied with
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As directors are agents of the company, agency rules apply to directors and determine what contracts they are authorised to enter into on behalf of the company
A company's articles typically vest general managerial power in the directors which includes the ability to contract on behalf of the company
S.40 provides that in favour of a person dealing with a company in good faith, the power of the directors to bind the company or authorise others to do so is deemed to free of any limitation under the company's constitution
s.40 can only be used by a person dealing with the company and so it cannot be used by the company itself
A person deals with a company if he is a party to any transaction or other act to which the company is a party