Directors' powers

Directors have such powers as are conferred on them by the articles of the company. Most companies have articles based on either the Model Articles (companies registered post 1.10.2009, or Table A (for companies registered before). Note also that most articles allow the directors collectively to delegate powers to individual directors.

Directors' powers under the articles
both the Model Articles and Table A have provisions

Model Articles:

Directors' general authority
3. Subject to the articles, the directors are responsible for the management of the company's business, for which purpose they may exercise all the powers of the company.

Table A: Most companies with articles of association which date pre-Oct 2009 have the following provisions of Table A:

Powers of directors
70. Subject to the provisions of the Act, the memorandum and the articles and to any directions given by special resolution, the business of the company shall be managed by the directors who may exercise all the powers of the company.... The powers given by this regulation shall not be limited by any special power given to the directors by the articles and a meeting of directors at which a quorum is present may exercise all powers exercisable by the directors.

In other words, the directors have the power to deal with any particular matter unless the Act, the articles or a (previously passed) special resolution says to the contrary.

Decisions which must be made by a resolution of the members
Most companies do not have special articles and most have not passed special resolutions to restrict the directors' powers, so the reality is that in most companies the directors can make any decision unless the Act says it needs a resolution in general meeting is required. The following is a list of the more commonplace decisions which must be made by the general meeting (and the type of resolution required):

Change company's name (special resolution): CA 2006, sec77
Amend or adopt new articles (special resolution): CA 2006, sec29
Wind up the company (type of resolution depends on the circumstances) Insolvency Act, 1986, sec84

Directors' decisions that need members' consent
The following decisions should be made by the directors but usually also require a resolution of the shareholders:

Some loans to directors (see related topic: Loans to directors).
Directors' fixed term service contracts for more than 2 years (see related topic: Are directors entitled to be paid?).
Substantial property transactions in which directors have a personal interest (see related topic: Conflicts of interest).
Issue shares (see related topic: Issuing shares).

Some things, such as the appointment of additional directors, can be done by the board or the general meeting. If the directors are actually or potentially in breach of their fiduciary duties, a resolution in general meeting, properly passed, may be used to authorise a transaction or give the company's consent to a profit or interest of the director.Serious potential liabilities can arise if the directors do not obtain the approval of the general meeting when this is required.

Delegation to individual directors
The powers noted above are given to the directors collectively. Neither the Model Articles nor Table A power on any individual director. For this, the board must delegate power to the director concerned. Both the Model Articles and Table A permit this.

The Model Articles provide that:

5. (1) Subject to the articles, the directors may delegate any of the powers which are conferred on them under the articles-
(a) to such person or committee;
(b) by such means (including by power of attorney);
(c) to such an extent;
(d) in relation to such matters or territories; and
(e) on such terms and conditions;
as they think fit.

Table A provisions

71. The directors may, by power of attorney or otherwise, appoint any person to be the agent of the company for such purposes and on such conditions as they determine, including authority for the agent to delegate all or any of his powers.

72. The directors may delegate any of their powers to any committee consisting of one or more directors. They may also delegate to any managing director or any director holding any other executive office such of their powers as they consider desirable to be exercised by him. Any such delegation may be made subject to any conditions the directors may impose, and either collaterally with or to the exclusion of their own powers and may be revoked or altered. Subject to any such conditions, the proceedings of a committee with two or more members shall be governed by the articles regulating the proceedings of directors so far as they are capable of applying.

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.

A company with these provisions in its articles should resolve at a board meeting to confer appropriate powers on the various executive directors, together with any limitations on the powers so conferred (e.g. financial limits, areas of competence, etc.) and see that these are clearly minuted. Such resolutions will confer actual authority on the directors concerned. If a director exceeds his or her actual authority when dealing with those outside the company, the acts will still bind the company if the director was acting within his or her apparent or ostensible authority: Freeman & Lockyer v. Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480, CA; Hely-Hutchinson v. Brayhead Ltd [1968] 1 QB 549, CA.

Detailed consideration of the agency rules as they apply to directors (often referred to as the rule in Turquand's case: Royal British Bank v. Turquand (1856) E & B 327, 119 ER 886) is beyond the scope of this database.