Legal Aspects of Business: Director's Duty and the Companies Act 2006

This report provides a critical analysis of the legal aspects of business, specifically focusing on the duty of a director to act within their powers, as outlined in Section 171 of the Companies Act 2006. The report discusses the importance of directors adhering to the Articles of Association and acting within their authorized scope, referencing relevant legislation and case law such as Re Smith and Fawcett and Punt v Symons. It emphasizes the potential consequences of directors exceeding their powers, including legal actions and financial liabilities. The analysis highlights the role of directors in decision-making, emphasizing the need for careful consideration and adherence to the company's constitution to prevent fraudulent activities and protect the organization's interests. The report concludes by underscoring the significance of directors in the success of a business and the necessity of performing their duties within the prescribed legal framework.

Legal Aspects of
Business

Table of Contents
INTRODUCTION...........................................................................................................................3
MAIN BODY..................................................................................................................................3
By referring to relevant legislation and case law, critically discuss the following duty of a
director of a company: Duty to act within powers (section 171 Companies Act 2006)..............3
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................5

INTRODUCTION
Legal Aspect of Business can be explained as the law and regulation which is applicable
upon business entity. In legal aspects, there are various laws and regulations which simply
discusses that how any of the organisation is needed to perform their business activity. If in any
of the circumstances, company do not comply with rules and regulations then sustain for them
within the market becomes very difficult. In context of the file, there will be discussion about
section 171 of Company Act which is related with duty to act within the power.
MAIN BODY
By referring to relevant legislation and case law, critically discuss the following duty of a
director of a company: Duty to act within powers (section 171 Companies Act 2006)
In present scenario, any of the business entity which has been performing its business
activity is required to understand that multiple number of laws and regulations are applicable
upon them which they must comply with (Clarke and Henderson, 2016). If an entity fails to
comply with those duties and it becomes one of the tough task for the organisation to accomplish
their goals. In order to work as per the guidelines of law, every company appoints director who
has knowledge of different sector but still there are some of the powers and duties which are
assigned to them and they must be able to do so. All of those duties and power are discussed
within the section 171.
Talking about section 171, it simply discusses that any of the director with the company
do not have the power to take those decisions where they are not authorised. If in case directors
thinks that taking any of those decision can be helpful, then they must be able to understand that
in this particular situation legal action can be taken where their directorship can be easily
cancelled. As per section 171 of Company Act 2006, any of the director has two different duties
where first duty is all about performing any of the task as per the Article of Association which
has been prepared and the second most important duty is to perform only those task within the
organisation for which they have been appointed within the company (Directors Duty, 2018).
There are many reason for Company Act, 2006 to describe about the duty of director in
detail because it is said that directors are key person within the company who can easily take
those decisions due to which goals can be accomplished and even they can take those decisions

due to which organisation might have to suffer. It is said that whenever their powers and rights
are restricted then there is less opportunity that company will have to suffer. In context of
Section 171, the first duty is to perform any of the work as per the guidelines of Article of
Association. It means that any of the director do not has those power and capabilities to take
decision which can affect the constitution of an organisation. The main reason behind forcing
any of the employee to work as per the guidelines of company constitution because it simply
allows the organisation to reduce chances of any types of fraudulent activity. Restriction on
power and responsibility means that if any of the director takes any of those decision which are
not favourable and beyond his or her capacity then action can be taken against them and it was
the concept which was introduced from one of the landmark case between Re Smith and
Fawcett. In addition, in this situation director will have to pay all of the damages amount to the
organisation (Hudson, 2017).
Although, law has been formed and decision are needed to be taken after reviewing but, it
is necessary to understand that in any of the circumstances, directors will force themselves to
review their each and every decision which is one of the favourable step for the business
organisation where role of director is huge. There are number of director in a company who is
appointed and they are being given very limited number of opportunity and they must be able to
understand that they should only perform those work for which company has appointed them and
if they fail to do so then legal action can be taken easily upon the entity. Punt v Symons is one of
the similar landmark where it was observed that director of an organisation didn’t worked as per
the guidance and eventually he took those decisions which were not authorised to them
(McCracken and et. al., 2018). It is one of the best example which clearly indicates that director
of a company fails to react as bona fide and company got opportunity to take legal action against
the person for the breach of duty.
As per section 171, director of an organisation has some of the important role such as
arranging the duties within the company, secondly trying the organise meeting with the entity
which plays the crucial role and solving any of the problem which are being faced by employee.
In addition, they are the one who have most of the important information within company and
according to that they are needed to understand that they should not share that information with
any of the person (Hannigan, 2018). Also, as per the duty of director, they should not try to earn

any of the hidden profit from the company and if they do so then penalty can be imposed upon
them.
CONCLUSION
After having a detail analysis, it is necessary to understand that any of the organisation
which has been performing its business activity requires the director who can take daily basis
decision so that goals and target can be accomplished easily in best possible manner. In any of
the organisation, there is a huge importance of director but still they are required to understand
that they must be able to perform any of the work as per the which has been provided to them by
entity and if they fail to comply with those rules and regulations then legal actions can be taken
upon the organisations. In short, directors are key person behind the success of an organisation.
REFERENCES
Books & Journals
Clarke, B. and Henderson, G. E., 2016. Directors as guardians of the public interest: lessons from
the Irish banking crisis. Journal of Corporate Law Studies, 16(1), pp.187-220.
Hudson, A., 2017. Understanding company law. Taylor & Francis.
McCracken, M. and et. al., 2018, March. A study of human capital reporting in the United
Kingdom. In Accounting Forum (Vol. 42, No. 1, pp. 130-141). Taylor & Francis.
Hannigan, B., 2018. Company law. Oxford University Press, USA.
Online
Directors Duty. 2018. [Online]. Available Through:
<https://www.elementalcosec.com/guides/directors-duties/>