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Directors and Members 2
Directors and Members 2
One who, or that which, directs; one who regulates, guides, or orders manager or superintendent. One of a body of persons appointed to manage the affairs of a company or corporation; as, the directors of a bank, insurance company, or railroad company. A part of a machine or instrument which directs its motion or action. A slender grooved instrument upon which a knife is made to slide when it is wished to limit the extent of motion of the latter, or prevent its injuring the parts beneath.
Interest Directors are expected to display a high standard of care, skill or diligence Directors are expected to act in good faith to promote the success of the corporation
an argument that the power to issue shares could only be properly exercised to raise new capital as too narrow, and held that it would be a proper exercise of the director's powers to issue shares to a larger company to ensure the financial stability of the company, or as part of an agreement to exploit mineral rights owned by the company. If so, an incidental result (even desirable) that a shareholder lost his majority, or a takeover bid was defeated would not itself make the share issue improper. But if the sole purpose was to destroy a voting majority or block a takeover bid, that would be an improper purpose.
and the need to act fairly as between members of a company. This represents a considerable departure from the traditional notion that directors' duties are owed only to the company. Previously in the United Kingdom, under the Companies Act 1985, protections for nonmember stakeholders were considerably more limited (see e.g., s.309, which permitted directors to take into account the interests of employees but that could be enforced only by the shareholders, and not by the employees themselves. The changes have therefore been the subject of some criticism. Directors must act honestly and in bona fide. The test is a subjective onethe directors must act in "good faith in what they considernot what the court may consideris in the interests of the company..." per Lord Greene MR. However, the directors may still be held to have failed in this duty where they fail to direct their minds to the question of whether in fact a transaction was in the best interests of the company. Difficult questions arise when treating the company too abstractly. For example, it may benefit a corporate group as a whole for a company to guarantee the debts of a "sister" company, even if there is no "benefit" to the company giving the guarantee. Similarly, conceptually at least, there is no benefit to a company in returning profits to shareholders by way of dividend. However, the more pragmatic approach illustrated in the Australian case of Mills v. Mills (1938) 60 CLR 150 normally prevails: "[directors are] not required by the law to live in an unreal region of detached altruism and to act in the vague mood of ideal abstraction from obvious facts which must be present to the mind of any honest and intelligent man when he exercises his powers as a director."
Independent judgment
S.173 CA 2006
Directors cannot, without the consent of the company, fetter their discretion in relation to the exercise of their powers, and cannot bind themselves to vote in a particular way at future board meetings. This is so even if there is no improper motive or purpose, and no personal advantage to the director. This does not mean, however, that the board cannot agree to the company entering into a contract that binds the company to a certain course, even if certain actions in that course will require further board approval. The company remains bound, but the directors retain the discretion to vote against taking the future actions (although that may involve a breach by the company of the contract that the board previously approved).
and put up with an incompetent decision maker, they should not have recourse to complain.
S.175 CA 2006 Keech v. Sandford (1726) Sel Cas. Ch.61 Regal (Hastings) Ltd v Gulliver [1942] All ER 378 Cook v Deeks [1916] 1 AC 554
Directors have a duty to prevent a company incurring a debt while it is insolvent. Duty to act in good faith Directors have a duty to exercise their powers and discharge their duties in good faith in the best interests of the company. Improper use of position A director, secretary, officer or employee of a company cannot improperly use their position to gain an advantage for themselves or someone else, or to cause detriment to the company. Conflict of interest Directors have a duty to avoid situations in which there is a real possibility of conflict between their personal interests and the company's interests.
Definition of Members
Shareholder (stockholder) of a firm. In corporate legislation, a member is generally defined as (1) the subscriber to a firm's memorandum of association (or articles of incorporation) who is deemed to have agreed to become a member of the firm, and whose name is entered in the firm's register of members when the firm is registered (or incorporated). (2) Every other person who agrees to become a member of the firm and whose name is entered in the firm's register of members. Shareholders who join a firm at its inception are called founder members.
Fiduciary Duties
If a member of an LLC is also a manager of the LLC, then that member is in a position of trust. To protect other owners of the LLC, these members owe the LLC the duty of loyalty and the duties of care. The duty of loyalty prevents a member from competing with the LLC in another business. A member must refrain from dealing with a person or business with interests adverse to those of the LLC and must account for any benefits received from use of LLC property or from the winding up of LLC affairs. The duty of care requires a member to refrain from grossly negligent, reckless, or intentional misconduct. The duties of loyalty and care are similar in partnership law. Managers of an LLC who are not owners are held to the same standard. However, a member who is not a manager of an LLC is not bound by the same duties, since such a manager is not involved in the day-to-day activities of the company.
Transferring Interests
A member may transfer his or her financial rights to profits and losses, and the right to receive distributions, in all states. However, a member cannot transfer full ownership interests, such as those related to the right to manage the company, without unanimous agreement of all of the other members. Rights related to transferability of interests can be modified in the operating agreement.