Unofficial practice for the ACCA Corporate and Business Law (LW) exam. Not affiliated with or endorsed by ACCA.
Corporate and business law exam prep
The Companies Act 2006 sets out seven general duties that every director owes to the company. Study guide outcome F1(d) asks you to explain them and the controls on dealings between directors and their companies.
| Section 171 | Act within the company's constitution and use powers only for the purposes for which they are given |
|---|---|
| Section 172 | Promote the success of the company for the benefit of its members as a whole |
| Section 173 | Exercise independent judgment |
| Section 174 | Exercise reasonable care, skill and diligence |
| Section 175 | Avoid conflicts of interest |
| Section 176 | Not accept benefits from third parties |
| Section 177 | Declare an interest in a proposed transaction or arrangement with the company |
The general duties are owed by a director to the company, not to individual members or creditors, so it is normally the company that enforces them.
Under section 172 a director must act in the way they consider, in good faith, most likely to promote the success of the company for its members as a whole, having regard among other things to the long term, employees, suppliers and customers, the community and the environment, the company's reputation, and fairness between members.
Section 174 judges a director against the knowledge, skill and experience reasonably expected of a person carrying out that director's functions, and also against the knowledge, skill and experience that director actually has.
Company directors
Members of Dunmore Ltd have given special notice of a resolution to remove Hamza as a director. Hamza sends the company written representations of a reasonable length, in good time, and asks for them to be sent to the members.
What must the company do? (2 marks)
Formation and constitution of a company
Jarrow plc, a newly registered public company, has allotted 200,000 ordinary shares of 25p each at par, each paid up as to one quarter of its nominal value. It applies for a trading certificate.
Does Jarrow plc's share capital meet the requirements for a trading certificate? (2 marks)
Corporations and legal personality
Fairley Ltd, a private company, wishes to re-register as a public company limited by shares.
Which TWO of the following are requirements for its re-registration? (2 marks)
Seven, in sections 171 to 177 of the Companies Act 2006.
The duties are owed to the company, so the company enforces them, normally acting through its board or, in some cases, through members bringing a derivative claim on its behalf.
Both. Section 174 sets a minimum standard of what is reasonably expected of someone in the director's role, raised for a director with greater knowledge, skill or experience.
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