LLB020N207A: Shareholder Powers and Director Duties Report

This report delves into the dynamics of corporate governance, examining the extent to which shareholders can exert supervisory powers and control over a board of directors. It begins with an analysis of shareholder strategies in overseeing the board, highlighting the roles of voting rights, ownership, transfer of ownership, dividend offers, examination of records, and the right to sue for wrongful activities. The report then assesses how directors’ duties under sections 171, 172, and 174 of the Companies Act 2006 assist shareholders in exercising power and control. It explores the duties outlined in these sections, emphasizing the importance of acting within the company's articles, acting in good faith, and exercising reasonable care, skill, and diligence. The report supports its arguments with case studies such as Hogg v. Cramphorn Ltd. and IDC v Cooley, providing practical examples of the application of legal principles in corporate settings. The report concludes by summarizing the key findings regarding the balance of power between shareholders and directors, and the impact of the CA 2006 on corporate governance.

Law for Business Enterprise

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
1) Critically evaluating the extent to which shareholders seek to exercise supervisory powers
or control over a board of directors.............................................................................................1
2) Assessing the extent to which directors’ duties under ss 171, 172 and 174 CA 2006 assist
shareholders pertaining to exercising power and control............................................................4
CONCLUSION................................................................................................................................6

INTRODUCTION
This report is based upon undertaking the matters which is related to the law of business
which is specially designed to examine the matters which is undertaken to set the business1. This
report carries the matters related to the exercising the power and control over the board of
directors on particular bases. It also carries the role of the directors which is to be determined on
the bases of section 171, 172 and 174 CA, 2006.
MAIN BODY
1) Critically evaluating the extent to which shareholders seek to exercise supervisory powers or
control over a board of directors
Case: In respect of analysing the strategies which the shareholder is adapting in respect of
supervising its power or imposing control on the board of directors regarding managing the
work. As in case of the modern corporation and private property, they feel that shareholder are
totally depends on the board of directors’ decision and not make the accurate judgement for
themselves. Thus, in such case their roles are less effective in managing the decision of the
company.
Legal Solution: Shareholder are the person which carry the right to take the decision of the
company as they play the role of owners in the company and also undertake various rights and
liabilities to take the decision to manage the internal and external matters in better way2. In
respect of law, the person cannot attain the post of the shareholders until and unless such person
holds the right and also their name in entered under the corporation register of shareholders.
They hold the supervisory powers in relation to following aspects such as:
 Voting powers: Shareholder carry the supervisory power in respect of electing the
directors who play the role of the agents in the company3.
1 Rhodes, C., 2015. Business statistics. Briefing paper. 6152.
2 Whincop, M. J., 2017. From bureaucracy to business enterprise: Legal and policy issues in the
transformation of government services. Routledge.
3 Bainbridge, S. M., 2017. Corporate Directors in the United Kingdom. Wm. & Mary L. Rev.
Online. 59. p.65.
1

 Ownership rights: As there are mainly two types of shareholders, common shareholders
and preference shareholders. Common shareholder mainly enjoys the right but also carry
equivalent risk before attaining any task but in case of preference shareholders they are
firstly preferred4.
 Power to transfer ownerships: As the business is run by the interest of the investors and
the chances of fluctuation of investors’ interest is higher. Thus, they carry the right in
respect of transferring the title of ownership to another person in respect of securing the
interest of the business for longer way.
 Offer dividend: As in respect of gaining more profits in company, it is the duty of the
company to offer dividend o the investors who had invested shares in the company5.
 Examined books and records to verify the company working: Shareholders carry the
rights in respect of inspecting the books and other records in respect of verifying the
more information. As company accounts and other documents are also inspected by the
government and investors and then accordingly, they make the decision regarding
investing money in the business6. But in such manner shareholder examined the books
and other documents to verify that matters and also identify the company working in
better way.
 Right to sue person for any wrongful activity: In respect of facing any illegal activity
which affects the right of the parties or also the company dignity is also affected than in
such case they can sue any of the person. They carry liberty in respect of protecting the
company from any unlawful conduct and also file suit against any person which are
involving in any illegal crime.
4 Bottomley, S., 2016. The constitutional corporation: Rethinking corporate governance.
Routledge.
5 Kramer, D. C., 2019. State capital and private enterprise: the case of the UK national
enterprise board. Routledge.
6 LeBaron, G. and Rühmkorf, A., 2017. Steering CSR through home state regulation: A
comparison of the impact of the UK bribery act and modern slavery act on global supply chain
governance. Global Policy. 8. pp.15-28.
2

Shareholder appoint the boards of directors of the company and them itself not carry the
position of the directors7. In such matters they carry certain rights in respect of controlling the
board of directors’ work in respect of following ways such as:
By offering the proposals: In respect of undertaking any new activity, shareholder offer
the proposal in market regarding the new services or deal which the company is initiating. In this
case it is mainly undertaken by the directors but now directors are taking less interest in such
deals.
Disclosures and transparency: As it undertakes the duty of the directors to manage the
company information and detail in better way and utilize such information to gain better profits8.
Derivative actions: If the shareholders feel that the director’s action are affecting the
right of the company or their decision are not in right directions, then in such case they pass the
shareholders resolution in which they place the agenda regarding replacing the directors9.
This case study is supported with the case study of the Hogg V. Cramphorn Ltd. [1967]
which is based on the director’s liability regarding performing the task in right manner. As the
issues is raised that Mr. Baxter approached to the board of directors Cramphorn ltd regarding
dealing the business with other company as takeovers. As directors feel that this takeover is not
successful for the company and thus, they issued 5707 shares with 10 votes to the trustees of the
employee’s welfare scheme10. As Mr Hogg sued in respect of not dealing in the contract in right
way but the directors suggest that they deal in such activity in good faith and not in motive to
earn extra profits. According to the judgement of the court, it states that directors violate the
condition of the contract as by preventing the company from takeover they sell the shares to the
7 Moore, C. R., 2016. Obligations in the shade: the application of fiduciary directors' duties to
shadow directors. Legal Studies. 36(2). pp.326-353.
8 Sweeting, P., 2017. Financial enterprise risk management. Cambridge University Press.
9 Barker, S. and et.al., 2016. Climate change and the fiduciary duties of pension fund trustees–
lessons from the Australian law. Journal of Sustainable Finance & Investment. 6(3). pp.211-244.
10 HOGG V CRAMPHORN LTD. [1967] CH.254. 2 0 1 9 . O N L I N E . A V A I L A B L E
T H R O U G H : < https://www.aiaworldwide.com/quick-look-at/quick-look-hogg-v-cramphorn-
ltd-1967-ch254>.
3

trustee. It results in infringing the right of the company in relation to not undertaking the decision
in right manner.
2) Assessing the extent to which directors’ duties under ss 171, 172 and 174 CA 2006 assist
shareholders pertaining to exercising power and control
Case: In these aspects, the duties of the directors are undertaken under section 171, 172 and
174 under the companies act, 2006. It also examines the enforcement regarding the shareholders
duties in exercising powers and control against managing the overall activity to gain better
results.
Legal solutions: Directors duties is to take care of the company regarding managing its
overall activity or also implementing accurate policies so that they retain the business for longer
way11. It also resulting in preparing the documents which reflect the overall integrity of the
business. Under the Company Act, 2006, they carry the duties under the following sections
such as:
Section 171: Directors carry the power in respect of performing the duty which reflect the
interest and beneficial to company. As they carry the duty in respect of working under the article
which is designed by the company for securing the integrity of the business12. Thus, in such
manner they had to work under the set powers which is designed under the Company’s Act, 2006
for better working of the business and also securing the interest of the people towards the
business.
Section 172: In thus sections, directors had to work in good faith and not mainly consider the
business for profit earning13. As they also had to manage the following responsibilities such as:
 Taking decision which resulting in bringing longer term gain in business.
 To work according to the interest of the employees and also take decision which secure
their interest in business.
 Building strong relationship with suppliers, customer and employees etc14.
11 Shepherd, C. and Ridley, A., 2015. Company Law. Routledge.
12 Baumfield, V. S., 2016. Stakeholder theory from a management perspective: Bridging the
shareholder/stakeholder divide. Stakeholder Divide (September 1, 2016). 31.
13 Picciotto, S. and Mayne, R. eds., 2016. Regulating international business: beyond
liberalization. Springer.
14 Act, E. S. B. F., 2019. I Changes in law. Newsletter of the Labour and Employment Law
Practice. 1. p.5.
4

 Carry responsibility in relation to acting fairly when any dispute arises at work place.
 Having accountability related to maintaining high standards decision in business, so that
reputation of the business is retain for longer time period15.
Section 174: In this section, directors carry the duty in relation to undertaking reasonable
care, duty and skills to deal with matters. Through these aspects, they secure the interest of the
business and also manage the close relationship between the employer and employee16. These
skills are importance in respect of moving the business in larger way as through these aspects
they take high standards decision and retain the position of business in market for longer way.
In case of IDC V Cooley, the issues are raised regarding not performing the duty as stated
under the articles of the company. As the Cooley, an architect attaining the post of the managing
directors of the industrial Development consultant Ltd. Of the IDC group. Cooley get a contract
by the Eastern gas regarding doing the business with them privately17. In that matter, Cooley
resign from the job by giving the reason regarding not feeling well and after that joined the
business with the Eastern group. Later IDC group analyse the facts and sued Cooley for giving
wrong reason regarding leaving the job. But the judgement of court is in favour of the Cooley
and they not commit any of the crime during engaging him in business.
Shareholders power and control in respect of managing the directors:
In these aspects, shareholders which are considered to be the owners of the company had
vital powers in respect of managing the condition of the company. As directors play the role of
agents in company as they listen to shareholder and then implement policies which further given
to their supervisors to assign work according to the set directions18. Through this manner they
carry certain powers such as:
15 ANDREW. KEAY, L. L. B., 2016. DIRECTORS'DUTIES. JORDAN Publishing Limited.
16 Yoshikawa, T. and Hu, H. W., 2017. Organizational citizenship behaviours of directors: An
integrated framework of director role-identity and boardroom structure. Journal of Business
Ethics. 143(1). pp.99-109.
17 I N D U S T R I A L D E V E L O P M E N T C O N S U L T A N T S L T D V C O O L E Y : 1 9 7 2 .
2 0 1 9 . O n l i n e . A v a i l a b l e t h r o u g h : < https://swarb.co.uk/industrial-development-
consultants-ltd-v-cooley-1972/>.
18 Clarke, T., 2015. The Widening Scope of Directors' Duties: The Increasing Impact of
Corporate Social and Environmental Responsibility. Seattle UL Rev. 39. p.531.
5

 If the power of the board of directors are mentioned under the article than in such case
shareholders carry the powers in respect of removing the directors with carrying the
decision with the remaining boards. This statement is supported with the case study of the
John Shaw and Sons (Salford) Limited V Peter Shaw and john Shaw [2] as if the power
of the management lies under the power of the directors than in such case, they only rule
is committed by the board of directors19. As management are not, they are bound to
follows the decisions which is made to secure the reputation of the business.
 As directors also carry certain duty in respect of performing the task when the superiors
are not available, but such powers are also given to directors in respect of taking
decision20. This thing is only applied in case of having trust and loyalty at work and then
only the articles are amended for their benefits. This statement is supported with the case
study of the Cannon V Trask [1] as in this case the judgment is identified regarding not
infringing the right of the directors21. As the managements of the compony such as
shareholder cannot carry such rights in respect of infringing the right of the directors of,
they are performing the duty in arbitral way.
CONCLUSION
From the above study, the report concludes the matters relating to imposing laws which is
designed on business for smooth working of the company. Under companies act, 2006, various
laws are imposed which manages and control the working of the shareholder and directors
regarding taking right decisions. Hence, in the context of business units, directors are obliged to
work according to the aspects mentioned in section 172 & 174.
19 John Shaw & Sons (Salford) Ltd v Shaw [1935] 2 KB 113. 2 0 1 9 . O n l i n e . A v a i l a b l e
t h r o u g h : < https://lawcasesummaries.com/knowledge-base/john-shaw-sons-salford-ltd-v-
shaw-1935-2-kb-113/>.
20 Gelter, M. and Helleringer, G., 2015. Lift Not the Painted Veil: To Whom Are Directors
Duties Really Owed. U. Ill. L. Rev. p.1069.
21 C A N N O N V T R A S K : 1 8 7 5 . 2 0 1 9 . O n l i n e . A v a i l a b l e t h r o u g h : <
https://swarb.co.uk/cannon-v-trask-1875/>.
6

7