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Legal position of a managing director

The legal position of a managing director in any particular company will depend on the company's memorandum and articles, the terms of any service contract the MD has with the company and what powers have been invested in her/him by the board.

The Model Articles (for companies registered after 1.10.200) and Table A (for any companies registered before) contain the relevant provisions.

The Model Articles provide that:

19. (1) Directors may undertake any services for the company that the directors decide.
(2) Directors are entitled to such remuneration as the directors determine-
(a) for their services to the company as directors, and
(b) for any other service which they undertake for the company.
(3) Subject to the articles, a director's remuneration may-
(a) take any form, and
(b) include any arrangements in connection with the payment of a pension, allowance or gratuity, or any death, sickness or disability benefits, to or in respect of that director.

Table A provides that:

Article 84. Subject to the provisions of the Act, the directors may appoint one or more of their number to the office of managing director or to any other executive office under the company and may enter into an agreement or arrangement with any director for his employment by the company or for the provision by him of any services outside the scope of the ordinary duties of a director. Any such appointment, agreement or arrangement may be made upon such terms as the directors determine and they may remunerate any such director for his services as they think fit. Any appointment of a director to an executive office shall terminate if he ceases to be a director but without prejudice to any claim to damages for breach of the contract of service between the director and the company. A managing director and a director holding any other executive office shall not be subject to retirement by rotation.

Most companies have this provision. The actual authority of the managing director to act for the company depends on the powers vested in her/him by the board, either by resolution (which should be minuted) or by the terms of a service agreement. The ostensible authority of a managing director will depend on all the circumstances but, based on the title alone, will be very wide: Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, CA; Hely-Hutchinson v. Brayhead Ltd [1968] 1 QB 549, CA.

A person appointed as a 'Chief Executive Officer' will be in the same position as a managing director.