It is often the case within small to medium enterprises that a company's Directors and Shareholders are the same people. This is only sometimes the case, as the two may differ, especially in larger companies. Generally, a company is owned by its Shareholders but run by its Directors, who have the power to:
- Control the company.
- Deal with customers and suppliers.
- Act in a legal capacity to deal with various laws and regulations.
A Director’s obligations are described in the Companies Act 2006 and are, in principle to:
- Act within their powers.
- Promote the success of the company.
- Exercise independent judgment.
- Exercise reasonable skill, care, and diligence.
- Avoid conflicts of business interest.
- Not accept benefits from third parties.
- Declare personal interests in arrangements or transactions with the company.
Shareholders have limited powers derived from the Companies Act 2006 and the company's Memorandum of Association, Shareholders' Agreement, Articles of Association, or other Resolutions that a company's Board of Directors may have passed. Different classes or types of shares may define shareholders' rights. However, Shareholders' rights are principally concentrated on the following within private limited companies:
- Attend general meetings and vote.
- Receive a share of the company's profits.
- Receive specific documents from the company.
- Inspect statutory books and constitutional documents.
- Any final distribution on the winding up of the company.
- Deciding company Directors’ powers and remunerations.
- The levels of company investment.
- Authorising dividend structure.
- Appointing and removing directors.
- Authorising the transfer and/or the allotment of shares.
- Ordinary: An ordinary resolution is passed by shareholders where the majority votes in favour of a proposal at the meeting. Usually, more than 50% of the votes cast must be in favour.
- Special: A special resolution may be required by the Companies Act, for example, to change the Articles of Association. The Articles can also require more than 50% majority to vote in favour of a special resolution for it to be passed.
Suppose a director of a company breaches their obligatory duties. In that case, the company can take legal action against the Director, an act usually instigated by the stakeholders seeking restitution for financial loss or damage. The company has a variety of legal options available, such as requesting the Director to:
- To account for any profits.
- Pay compensation.
- Return company property.
- Rescind the Directors contract.
- Wrongful trading occurs when directors continue trading after there is no reasonable prospect of a company avoiding liquidation. A court can order a Director committing illegal trading activities to be personally responsible for a company’s debts.
- Fraudulent trading occurs when directors manage an insolvent company to defraud creditors, which is a criminal offence. A court can order a Director to repay any fraudulently obtained monies to the company.
- Directors who breach any duties they owe can be personally liable for misfeasance, which covers unauthorised loans or payments to directors. In this case, a court may order a director to repay the company for the misused money.
Any person can trade as
a self-employed Sole Trader. They run their business as an individual but may
employ staff. A Sole Trader is solely responsible for their business, its tax liabilities,
and debts. Any financial loss in the business's profitability is the total liability
of the Sole Trader.
A Limited Company is an organisation set up to run a business where the business’s finances are the sole liability of the Limited Company, in which the Limited Company acts as a separate legal entity from the company’s owners. Once tax liabilities have been fulfilled, the profits can be distributed to Shareholders as dividends. There are two types of Limited Companies:
- Private Limited Company (Ltd) whose shares cannot be traded through a stock exchange.
- Public Limited Company (PLC) – whose shares can be traded through a stock exchange.
- Insider dealing is trading company stock or other securities by people internal to the company or who have access to confidential and private company information.
- Market manipulation occurs when there is a premeditated attempt to influence the pricing of company stock or other securities or with the operation of a stock market to create a false or misleading impression of market pricing.
- Unlawful disclosure occurs when a person possesses private company information and passes it to someone not authorised to receive it.
- Insider Dealing.
- Unlawful Disclosure of Inside Information.
- Market Manipulation.
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