When do the board of directors need the approval of the company’s shareholders?
As most directors will know, it is the board of directors that make the decisions about a company’s business on a day to day basis. But, there are certain circumstances where UK company law dictates that the shareholders of the company will have the final say.
The Companies Act 2006 sets out a number of circumstances where the board of directors of a company will be required to seek the approval of the company’s shareholders before entering into a transaction. Most of these circumstances relate to transactions involving a director of the company or (in many cases) a person connected with a director. The circumstances include:
· Where a company is buying a substantial asset (that isn’t cash) from a director of the company or any person or entity connected with a director or is selling a similar asset to a director or any person connected with a director;
· Where a company is proposing to make a loan to a director or provide a guarantee (or other form of security) for the benefit of a director; or
· Where a company is looking to enter into a service contract with a director which is for a fixed term of 2 or more years.
Rebecca Gardner, Corporate & Commercial Partner at Howat Avraam Solicitors comments: It is surprising how often these issues come up in relation to small companies. Whilst there are exceptions to the general rules, wherever a company is seeking to enter into an arrangement in which a director has an interest (whether direct or indirect), the board of directors will need to be conscious of these rules. A failure to obtain the necessary approval could result in the transaction or arrangement being completely void. It’s usually better to be safe than sorry.
Howat Avraam Solicitors provide Corporate, Commercial, Employment, Intellectual Property and Contract Dispute advice to companies, business owners and individuals. As business owners ourselves, we have a pragmatic in-house approach to resolving issues before they arise by working alongside our clients, often on monthly retainers. We are commercial, practical and entrepreneurial in our approach to legal services.
To discuss any Corporate or Commercial matter on a no obligation basis, please contact Rebecca Gardner on 020 3735 6700 or email Rebecca at Rebecca.Gardner@hasolicitors.co.uk. Alternatively, visit our website at www.howatavraamsolicitors.co.uk.
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