Corporate Governance and Compliance

Introduction

This chapter examines **corporate governance and compliance**: the framework of duties, powers and procedures that determine how a company is run and how decisions are validly made. We begin with the **seven codified directors' duties** under **ss. 171–177 of the Companies Act 2006 ('CA 2006')** and the consequences of breach, before turning to the **powers and rights of shareholders**, the **classes of shares**, and the **protection of minority shareholders** through **unfair prejudice petitions (s. 994)**, **derivative claims (ss. 260–264)** and **variation of class rights (s. 630)**. We then work through the **company decision-making machinery** — **board meetings**, **general meetings** and **written resolutions** — and the rules on the **appointment and removal of directors**, **loans to directors (ss. 197–214)** and **substantial property transactions (ss. 190–196)**.

Assessment focus

For the SQE1 FLK1 assessment in **Business Law and Practice**, you must be able to **apply** the directors' duties in **ss. 171–177 CA 2006** to client scenarios, identify the correct **type of resolution** (ordinary v special) and the **procedural requirements** for board meetings, general meetings and written resolutions, and advise on **shareholder rights and minority protection**. Heavily examined areas include **quorum and conflicts under Model Article 14**, the **s. 177 duty to declare interests** (which cannot be disapplied), **short notice (90%)**, **substantial property transactions** and **loans to directors**, and the **PSC register (over 25%)**. Questions are single best answer questions (SBAQs) set in **realistic client-based scenarios**: you will be expected to **apply** the law to facts, not merely recall it. This is a closed-book assessment — commit the key thresholds, sections and Model Articles to memory.

Study tips

1) Memorise the **seven duties** ss. 171–177 and that **breach of s. 174 sounds in damages**, whereas ss. 171–173 and 175–177 attract **equitable** remedies (account of profits, rescission, equitable compensation, injunction, restoration). 2) Learn the **shareholder threshold ladder**: **100% / 75% / over 50% / over 25% / 10% / 5%**. 3) Distinguish **s. 177 (cannot be disapplied)** from **MA 14 (can be disapplied)**. 4) Master the **GM mechanics**: **14 clear days** notice (so the GM is at least **16 days** after notice is given), **short notice = majority in number holding ≥ 90%** of voting shares. 5) Know the **SPT test** (over £100,000, or over £5,000 and over 10% of net asset value) and the **loan-to-director exceptions** (£10,000 / £15,000 / £50,000). 6) Remember **PSC = over 25%**, and that a **director cannot be removed by written resolution** (s. 168 and s. 288(2)).