Exam Ready Notes for CORE Module ‘Business Law’!
Workshop 15 Notes of the Business Module on the Legal Practice Course (LPC) at the University of Law.
These notes were used for the June 2023 exams, where I achieved a Distinction!
Directors Service Contracts
• Where a director works for the company as an executive director, he is usually also an employee of the company.
1. Contracts ® The board of directors will be empowered under the company’s articles to enter into a service
Awarded By contract with a director on behalf of the company.
the Board:
ü For example, Art 3 + 19 MA and Table A, Art 84 permit the board to do this.
ü The board will decide;
a) The terms of each service contract, including the director’s responsibilities.
b) Any authority the director is to have to act on behalf of the board and;
c) The amount of salary and benefits to be paid.
Director being Awarded a Contract While Taking up Office:
® When a service contract is being discussed and voted upon at a board meeting, if the director who
is to be awarded the service contract has already taken up office (interest declared based on
s177(6)), the director will often be prevented under the articles from voting and counting in the
quorum.
® However, this restriction, if it applies in the articles, may create a problem where there are only
two directors and one (or both of them) is to be granted a service contract.
® If the quorum for board meetings is two, the restriction in the articles will mean that only one
director can validly participate and so the meeting would not be quorate.
ü In other words, no valid decision could be taken.
ü The problem may be overcome by changing the articles (by special resolution of the
shareholders) to allow directors to vote whenever they have an interest in a matter with
their company (including in relation to their own service contracts).
ü This may be undesirable, though, as a protection against potential abuse by a director has
been removed for good.
ü An alternative might be for the shareholders to pass an ordinary resolution at a general
meeting, temporarily to relax the rules on directors voting and counting in the quorum just
for this particular board resolution.
ü Article 14 will allow this.
2. Guaranteed ® The board of directors may also award a director a guaranteed term contract.
- Term ® Here a director is contractually guaranteed to be employed for a specified period of time.
Contracts: o For example; A director may be appointed for a guaranteed period of 10 years.
Advantages:
® It offers job security for the period of time concerned.
® The CA 2006 consequently provides protection to the shareholders of the company.
• Shareholders must agree to SC of guaranteed term of longer than 2 years (CA 2006, s188)
• If the directors of the company call a shareholders’ general meeting to ask them to pass such
a resolution, a memorandum setting out the proposed service contract in question must be
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