Directors and shareholders of a company have different rights and responsibilities related to their respective roles.
Directors are responsible for the management of a company and undertake the decision making; that could be as a sole director or by a number of directors acting together. The law imposes on directors’ various duties, being in summary:
- To act within their powers
- To promote the success of the company
- To exercise their independent judgment
- To exercise reasonable care, skill and diligence
- To avoid conflicts of interest
- Not to accept benefits from third parties
- To declare any interest in a proposed transaction or arrangement with the company
Disagreements can and do arise between directors, often where it is alleged that one director is in breach of their duties owed to the company. This can lead to a situation where, to protect the interest of the company, the other directors are required to take action, such as seeking the removal of the offending director, or possibly wanting to seek financial recourse (on behalf of the company) for any losses that have arisen as a result of the director’s alleged misconduct.
Shareholders are the owners of the company but, unlike directors, are not typically involved in the day-to-day running of it. By virtue of their shareholding, in certain circumstances shareholders can take action against directors who are considered to be in breach of their duties, although such claims (known as ‘derivative’ actions) can only be brought in the name of the company and proceedings can only seek to recover the losses suffered by the company, not the individual losses of the shareholders (although there may be a link between the two).
Where it is alleged that the affairs of the company are being conducted in a manner that is unfairly prejudicial to the interests of shareholders, members of a company also have a right to bring a petition to court (under s.994 of the Companies Act 2006) to seek redress. The court has a wide discretion to order how the alleged prejudicial conduct should be remedied, although the typical relief sought is an order for the shares of the petitioning members to be bought at a fair price.
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