Part F Management, administration and regulation of companies 18: Company directors 2796.1.1 Statutory restrictions
Many transactions, such as an alteration of the articles or a reduction of capital, must by law be effected
by passing a special resolution. If the directors propose such changes they must secure the passing of
the appropriate resolution by shareholders in a general meeting.6.1.2 Restrictions imposed by articles
As an example, the articles often set a maximum amount which the directors may borrow. If the directors
wish to exceed that limit, they should seek authority from a general meeting.
When the directors clearly have the necessary power, their decision may be challenged if they exercise the
power in the wrong way. They must exercise their powers:
In what they honestly believe to be the interests of the company
For a proper purpose, being the purpose for which the power is given6.1.3 Members' control of directors
There is a division of power between the board of directors who manage the business and the members
who as owners take the major policy decisions at general meetings. How, then, do the owners seek to
'control' the people in charge of their property?
The members appoint the directors and may remove them from office.
The members can, by altering the articles (special resolution needed), re-allocate powers between
the board and the general meeting.
Articles may allow the members to pass a special resolution ordering the directors to act (or
refrain from acting) in a particular way. Such special resolutions cannot invalidate anything the
directors have already done.
Remember that directors are not agents of the members. They cannot be instructed by the members in
general meeting as to how they should exercise their powers. The directors' powers are derived from the
company as a whole and are to be exercised by the directors as they think best in the interests of the
company.6.1.4 Control by the law
Certain powers must be exercised 'for the proper purpose' and all powers must be exercised bona fide for
the benefit of the company. Failure by the directors to comply with these rules will result in the court
setting aside their powers unless the shareholders ratify the directors' actions by ordinary resolution
(50% majority).7 Powers of the Chief Executive Officer (Managing
Director)
The CEO or MD has apparent authority to make business contracts on behalf of the company. Their
actual authority is whatever the board gives them.In their dealings with outsiders the CEO or MD has apparent authority as agent of the company to make
business contracts. No other director, even if they work full time, has that apparent authority as a
director, though if they are employed as a manager they may have apparent authority at a slightly lower
level. The CEO or MD's actual authority is whatever the board gives them.
Although appointment as CEO or MD has special status, it may be terminated just like that of any other
director (or employee); they then revert to the position of an ordinary director. Alternatively the company in
general meeting may remove them from their office of director and they immediately cease to be CEO or
MD since being a director is a necessary qualification for holding the post.FAST FORWARD