Business Law in Practice by Paul Raby

By Paul Raby

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As shown in Salamon v Salamon & Co Ltd, once incorporated, a company exists legally in its own right. It can enter contracts in its own name and can sue and be sued in its own name. However, the legal entity cannot actually make these things happen. This is where the directors come in. In many ways the directors are the physical, as opposed to the legal, representation of the company. They act on the company’s behalf and perform a managerial, fiduciary and agency role in doing so. They also owe a duty of care to the company, as opposed to the individual shareholders.

The appointment of a committee of one or more directors. ● Some powers may be delegated to employees and directors would not be personally liable if those employees failed to exercise these powers satisfactorily, unless the director should have been aware that the employee was not competent (for example by taking references and ignoring the result). 2 above). qxp 21/7/05 3:28 pm Page 15 15 CHAPTER 1 Company directors above) and as such have different types of authority to bind the principal (the company) legally: ● Actual authority will be quoted in the Articles, detailing the limits of what they can, and cannot, do.

A director acting beyond his stated powers is said to be acting ultra vires, literally meaning beyond the powers of the company as stated in the Memorandum, or the directors through the Articles. 1 above), protection for a third party acting in good faith with a company acting ultra vires is generally much less significant than in the past. 2 Royal British Bank v Turquand 1856 The bank lent £2,000 to a company, of which Turquand was the general manager. The equivalent of the Articles of Association stated that the directors might borrow such sums as necessary, but the transaction should be authorised by a resolution of the members.

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