ACCA F4 - Corp and Business Law (ENG)

270 18: Company directors  Part F Management, administration and regulation of companies

Study guide

Intellectual level

F Management, administration and regulation of companies^

1 Company directors

(a) Explain the role of directors in the operation of a company and the different

types of directors, such as executive/non-executive directors or de jure and

de facto directors

2

(b) Discuss the ways in which directors are appointed, can lose their office and

the disqualification of directors

2

(c) Distinguish between the powers of the board of directors, the managing

director/chief executive and individual directors to bind their company

2

(d) Explain the duties that directors owe to their companies 2

Exam guide

The relationship between members of a company and their directors could easily be examined. The

detailed rules regarding directors and other company officers are all highly examinable.

1 The role of directors

Any person who occupies the position of director is treated as such, the test being one of function.

A director is a person who is responsible for the overall direction of the company's affairs. In company

law, director means any person occupying the position of director, by whatever name called.

Any person who occupies the position of director is treated as such. The test is one of function. The

directors' function is to take part in making decisions by attending meetings of the board of directors.

Anyone who does that is a director whatever they may be called.

A person who is given the title of director, such as 'sales director' or 'director of research', to give them

status in the company structure is not a director in company law. This is unless by virtue of their

appointment they are a member of the board of directors, or they carry out functions that would be

properly discharged only by a director.

1.1 De jure and de facto directors

Most directors are expressly appointed by a company and are known as de jure directors. A de facto

director is anyone who is held out by a company as a director, performs the functions of a director and is

treated by the board as a director although they have never been validly appointed.

1.2 Shadow directors

A person might seek to avoid the legal responsibilities of being a director by avoiding appointment as

such but using their power, say as a major shareholder, to manipulate the acknowledged board of

directors. In other words they seek the power and influence that come with the position of director, but

without the legal obligations it entails.

Company law seeks to prevent this abuse by extending several statutory rules to shadow directors.

Shadow directors are directors for legal purposes if the board of directors are accustomed to act in

accordance with their directions and instructions. This rule does not apply to professional advisers

merely acting in that capacity.

Key term

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