Monday 19 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 this newsletter.
Question:
DEF Ltd is a private limited company with multiple shareholders. Amy, a shareholder of DEF Ltd, passes away. Which of the following statements best describes the impact of Amy’s death on her shares in DEF Ltd?
- Amy’s shares will be transferred to her next of kin automatically upon her death.
- Amy’s shares will be transferred to DEF Ltd, and the company will cancel them.
- Amy’s shares will be distributed according to her will or the laws of succession.
- Amy’s shares will be offered for sale to the other existing shareholders at a discounted price.
- Amy’s shares will be transferred to DEF Ltd and allocated to the remaining directors.
Top Tip: Revising Contract Law? Have a look at the key topics discussed in this playlist.
Relevant Reading: For a relevant text to this week’s question see ReviseSQE Wills and the Administration of Estates. You can obtain* the text by following this link.
Answer and feedback to last week’s 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
The correct answer is 5: Alex’s actions are valid as regard outsiders regardless of limitations in the articles of association. In a private limited company, the board of directors generally exercises its powers collectively as stated in the articles of association. Major decisions impacting the company’s affairs and operations should be made collectively by the board. Alex’s actions of making major decisions without consulting the other directors go against the collective decision-making process established in the company’s articles of association. However, s.40 Companies Act 2006 determines that external parties are not affected by internal limitations of capacity. Therefore, an act of a director violating the articles will be invalid as regards the corporation, but can still have binding consequences for the company and third parties.
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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