The Significance of the Source of the Powers of Boards of Directors in UK Company Law
Journal of Business Law, Forthcoming
22 Pages Posted: 24 Oct 2010 Last revised: 1 Nov 2010
Date Written: October 21, 2010
One of the major characteristics of the corporate form is and always has been the separation of ownership (in shareholders) from control (in boards of directors). The default position in most jurisdictions is that the statute gives powers to the board of directors but the position remains less straight-forward in the United Kingdom where the Companies Act 2006 (UK) does not confer the powers to supervise the management of the company on the board of directors. It is considered by some to be “a point of some theoretical (even ideological) importance: the directors’ authority is derived from the shareholders through a process of delegation via the articles and not from a separate and free-standing grant of authority from the State. This helps to underline the shareholder-centred nature of British company law.” (Paul L. Davies, Gower and Davies’ Principles of Modern Company Law (8th ed, 2008) 366. The article demonstrates that the allocation of powers to boards through the constitution is most likely an anomaly brought about by the drafters of the original Joint Stock Companies Act 1856 using as a precedent existing deeds of settlement. Accordingly, it is suggested that no significance at all should be attached to this point of difference in UK company law and no conclusions about the legal relationship between boards and shareholders drawn from the allocation of powers being in the constitution rather than the statute.
Keywords: corporate, corporate governance, directors, boards of directors, powers of boards
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