Monday 12 February 2024
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of the newsletter.
Question:
ABC Ltd is a private limited company with multiple directors. The company’s articles of association grant the directors the power to make decisions collectively as a board. However, one of the directors, Alex, starts making major decisions for the company without consulting the other directors. Which of the following statements best describes the situation?
- Alex is allowed to make major decisions on behalf of the company as long as they are in the best interest of the company.
- Alex’s actions are valid because the articles of association grant individual directors the authority to make decisions.
- Alex’s actions are valid if he informs the other directors of their decisions after they have been made.
- Alex’s actions are invalid as regard outsiders because the articles of association require major decisions to be made collectively by the board.
- Alex’s actions are valid as regard outsiders regardless of limitations in the articles of association
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Relevant Reading: For a relevant text see ReviseSQE Business Law and Practice. You can obtain* the text by following this link.
Answer and feedback to last week’s question: XYZ Ltd is a private limited company with multiple shareholders. The company’s articles of association state that any transfer of shares requires the approval of the existing shareholders. Jack, a shareholder of XYZ Ltd, wishes to transfer his shares to a third party without obtaining the approval of the existing shareholders. Which of the following statements best describes the situation?
- Jack can transfer his shares freely without obtaining approval from the existing shareholders.
- Jack can transfer his shares without approval if he notifies the company in writing within a specified time frame.
- Jack cannot transfer his shares without the approval of the existing shareholders as per the company’s articles of association.
- Jack can transfer his shares without approval if he sells them at a fair market value determined by an independent valuation.
- Jack can transfer his shares without approval if the company’s directors provide written consent.
The correct answer is 3: Jack cannot transfer his shares without the approval of the existing shareholders as per the company’s articles of association. The situation described in the question pertains to the transfer of shares in XYZ Ltd. As per the company’s articles of association, any transfer of shares requires the approval of the existing shareholders. This provision is common in private limited companies where the shareholders often have pre-emptive rights or restrictions on the transfer of shares. In this case, Jack, as a shareholder, cannot transfer his shares to a third party without obtaining the approval of the existing shareholders. The articles of association serve as a contractual agreement among the shareholders and the company, and they define the rights and restrictions associated with the company’s shares. It is important for shareholders to adhere to the provisions outlined in the articles of association to ensure compliance with the company’s internal rules and regulations.
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All the best
Dr Ioannis Glinavos
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