Legal Aspect of Business: Duty to Promote Success of Company
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This report discusses the duty of directors to promote the success of a company as per the Companies Act 2006. It explores the responsibilities and considerations involved in this duty, including the enlightened shareholder value approach and the various stakeholders that directors must have regard to.
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Legal aspect of business 1
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Table of Contents INTRODUCTION...........................................................................................................................3 MAIN BODY..................................................................................................................................3 CONCLUSION................................................................................................................................5 REFERENCES................................................................................................................................6 2
INTRODUCTION In every company there are many people who work togetherto attain common goals.In that top management play vital role specially the directors. It is because they are having several rolesand responsibilities towards company.Thus, they have toadhere them within company. However, director alsotakes decisions as well. In this stakeholders are involved in it. Thus, success of company depends on duties of director that is being followed in it (Andersen, 2018). In this report it will be described about duty of director to promote success of company as per companies act 2006. MAIN BODY Duty to promote the success of company (section 172 companies act 2006) It is analysed that every companyhastoregister themselves under the companies act 2006. This is becausethe act consists of severallaws and regulations which companyhasto be follow. Moreover, the act defines some duties of director which they have to adhere and act in ethical way within company. Thus, there are various duties of director defined in it such as duty to act within powers, duty to promote success of company, duty to exercise independent judgment, avoid conflict of interest, etc. besides that director plays crucial role within company. They are known as trustee of company and follows certain principles as well. But here it will be discussed about duty topromotesuccess of company by director. There were two possible approaches to address the issue, namely the shareholder value approach and the pluralist approach (Conac, , 2016). It has been evaluated that the main thing in this duty is to enlightened share holder value. It means that director must act in such a way that he ispromoting success of company. Here, director needs to have a good faith towards company so that the members are benefited in it. so, there are several things in this regard which needs to be done that is : Likely consequence of decision taken for long term Interest of employees of company To build strong relationship with suppliers, wholesalers, customers etc. Impact of operations of company on society and environment To act in fair and better way between company members To maintain high standards of business conduct and its reputation (Corbisier, 2017) 3
It has been stated that as per companies act 2006 the enlightened share holder value duty needs to followed in effective way. Here, director must be able to act in fair manner in order to promote company success. This has to be done as long as they are directors. So, if there is any bad decision taken in it then directors are liable for it. however, as per section 174 in this it imposeduty to exercise reasonable careand diligence on them. Butthere are some matters in which directors are not exhaustive. The list of matters to which the directors must have regard, set out in section 172(1). The list make it quite plain that promoting the success of the company means much more than merely maximizing profit. Besides that, as per section 172 (3) that is related to creditors in it duty imposed by it is affected by subject to rule of law requiring directors. Thus, in some situations it is considered in interest ofcreditors ofcompany. Furthermore, at time ofinsolvency It is hard to predict the long term impact of section 172. It might significantly alter the approach required of directors so that they do genuinely consider the interests of the listed stakeholder groups. In addition section 172 state that whom directors are responsible, also, there are certain consideration for resolving stakeholder conflicts (Gilson, 2016). Members as whole -directordecision mustbe for benefitas member as whole. Here, whole refers to not to promote interest of particular group. Have regard to – in this there is list of stakeholder which director must have regard to. The list are interest ofcorporation, interest of employees, etc. alongside, another regard is interest of stakeholder, etc. besides that, regard is consumer and environment protection. Creditors- Fourthly, according to s.172 (3), the duty imposed on directors by s.172 is partially qualified by their duties towards creditors under relevant legislations and the common law. Enforcement – it enforces that director must report their business review to inform members. With that it allows director to perform duty in section 172 (Ivkosic, 2020). Therefore, it is evaluated that director duty in promote success ofcompany consists of many other things as well. So, as persection 172 director duty relate to creditor, stakeholder, etc. so, all decision are taken within interest of these people. It allows in giving rights to them to take decisionsindependently. It has been identified that there are several case laws related to this duty of director in which he has effectively promoted success of company. For example- cook and deeks, extrasure travel insurance ltd v scattergood. So, these case are example of how director duty of care is followed by them. Thus, it has shown what legalaction is to be taken 4
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when director breach its duty. Moreover, the act definessome duties of directorwhich they have to adhere and act in ethical way within company. CONCLUSION Hereby, it is concluded that there are many duties of director of company which they follow such as duty to act within power, to exercise independent judgment, avoid conflicts of interest, etc. However, in duty to promote success of company director must be able to act in fair manner in order to promote company success. This has to be done as long as they are directors. There are various regards in section 172 of directors that are have regard to, stakeholder, creditors, etc. 5
REFERENCES Books and journals Andersen, P.K., 2018, August. The European Model Company Act (EMCA)—a tool for Europeanintegration.InERAForum(Vol.19,No.1,pp.77-85).SpringerBerlin Heidelberg. Conac, P.H., 2016. The Chapter on Groups of Companies of the European Model Company Act (EMCA).European Company and Financial Law Review,13(2), pp.301-321. Corbisier, I., 2017. European Model Company Act (EMCA). Gilson, R.J., 2016. A Model Company Act and A Model Company Court. Ivkosic, M., 2020. Limited Liability Company in the Light of Amendments to the Company Act of 2019.Zb. Radova,57, p.551. 6