International Corporate Law

Running Head: BUSINESS AND CORPORATION LAW 0
International Corporate Law
12/22/2018
Student’s Name

International Corporate Law 1
Contents
Introduction.................................................................................................................................................2
Companies Act 2006...................................................................................................................................3
Issues with Section 172 5
Corporate Governance.................................................................................................................................8
Shareholder Theory 8
Stakeholder Theory 9
History of Corporate Governance in the UK.............................................................................................12
EU Law.....................................................................................................................................................15
Conclusion.................................................................................................................................................18

International Corporate Law 2
Introduction
Businesses are an important part of an economy as well as of society. This is the reason that it
consists of various stakeholders such as the government, shareholders, society, environment and
many others. In such a situation, the lead issue is a determination of the way in which companies
are required to carry out their business activities. Different countries have their separate
legislation to regulate the workings of companies. Here, this is necessary to understand that the
lead objective of a company is a generation of profit, until unless the same is not a non-profit
organization. However, the issue is that check that up to which level a company should focus on
it is profits. In the past time, these corporations were used to develop their focus on profits only,
but now the situation has been changed. With the development of economy and globalization, the
concept of corporate governance has been developed. Corporate governance can refer to a set of
principles, system, and processes that regulates and control the dealings of a corporation. In other
words, this c
On the other side, the legislation with respect to corporations is also important for another
reason, which is a separate legal entity feature of a corporation. It was held in the case of
Salomon v A Salomon and Co Ltd [1897] AC 221 that a company has it is different legal identity
from it is members, shareholders, and directors. Therefore, many of the cases have been reported
where directors used this unique feature of corporate for their personal benefits. To control such
issues, countries have developed legislation to regulate the behavior of companies as well as
directors. These legislations imposed some duties on directors and officers of the company in
order to ensure good corporate governance practices. Profit can be the focus of a corporate but
the same cannot be the only focus. With the changing of scenario, companies are now expected
1 Salomon v A Salomon and Co Ltd [1897] AC 22

International Corporate Law 3
to consider the interest of all stakeholders instead of the shareholders. The lead issue is the
absence of a universal set of practice. Directors and officers of each company have their different
visions, missions, and priories that regulate their behavior. The lead objective to present this
report is to develop an understating on the duties of directors and corporate governance
requirements mentioned under corporation act of the United Kingdom. In the presented report,
the focus will be made on section 172 of the Companies Act 20062. This is the lead legislation of
UK that set out rules, regulations, and provisions related to companies. Further, in the presented
report, the discussion will also include the topics such as issues with the section 172 of the act,
corporate governance theories, history of corporate governance in the UK, and the relation of EU
law with the corporate governance concept in the UK.
Companies Act 2006
This legislation consists over 1300 sections and is the longest act of UK 3. The act provides many
provisions in respect to corporates, such as the procedure of incorporation, share capital rules,
shareholders right, director duties and so on. Section 171 to 177 of the act states the general
duties of directors4. As the topic of discussion is corporate governance, this is mention that this
legislation ensures the existence of the same by introducing director duties. Section 172 is one of
the significant sections of the subjective act, which contain one of the duties of officers and
directors of the company5. According to the provisions of this section, a director of the company
has duty to promote the success of the company in a best suitable manner according to his/her
2Companies Act 2006
3Companybug.com, What is the Companies Act 2006? < https://www.companybug.com/what-is-the-companies-act-
2006/> accessed on 19 December 2018
4Saleem Sheikh, A Guide to The Companies Act 2006 (Routledge 2013).
5Ngozi Vivian Okoye, Behavioural Risks in Corporate Governance: Regulatory Intervention as a Risk Mechanism
(Routledge 2015)

International Corporate Law 4
good faith, which is beneficial for the members as a whole6. The definition of success, however,
is not granted under this section. In addition to this, sub-section 1 of the act provides some
aspects that directors are required to consider while performing their duties for the success of the
company. Section 170 states the scope of the duties contained by section 172. As per the
provisions of section 170 of the act, duties prescribed under section 172 are required to
interpreted and shall applicable in the same manner as common law and equitable principles.
Many of the times, it has been noted that the explanation of section 172 is not enough or it may
say that the same is a confusing section and therefore requires a level of clarity. However, to
check the issues with this section, the study of the same is necessary and therefore the section is
mentioned below:-
6Paul Thornton and Donald Fleming, Good Governance for Pension Schemes (Cambridge University Press 2011)

International Corporate Law 5
Source7
Issues with Section 172
In the following section, some problems are discussed, section 172 is not able to answer thereof.
These are the main issues in respect to section 172 of the act among most of them is about the
interpretation of the act. These issues are discussed as hereunder:-
 The first and lead issue with the meaning of this act is with the term “have regard to”. It
is not clear that whether directors need to consider the interest of stakeholders or only of
the shareholder. It may understand as the confusion that whether directors should pick an
option, which is beneficial for all the stakeholders in an equal manner, or another option,
which is best for the shareholders.
 Another confusing term is the success of the company. There is no clear definition under
this section or in any other part of the act that what success of the company stands for8.
This is the reason that directors of different company treat this term in a different manner.
Many of the times, a particular task does not adhere to the success of the corporation, yet
the management of a company can have believe that he did an act for the success of the
company.
 In respect to the term “amongst other matters”, the list is non-exhaustive. It means the
directors will only consider the interest of stakeholders when an act or decision is
beneficial for the shareholders. The issue is irrelevancy of this section in such situation.
7 Legislation.gov.uk, ‘Companies Act 2006’ <https://www.legislation.gov.uk/ukpga/2006/46/section/172> accessed
on 19 December 2018
8Georgina Tsagas, ‘Section 172 of the UK Companies Act 2006: Desperate Times Call for Soft Law Measures’ <
https://www.law.ox.ac.uk/business-law-blog/blog/2017/09/section-172-uk-companies-act-2006-desperate-times-
call-soft-law> accessed on 19 December 2018