Although the Board of Directors has powers over the affairs of the corporation, these powers are not absolute. To protect the company and the shareholder, the Companies Act 2006 included several provisions that limit the powers of the Board of Directors. These limitations are not in anyway meant to curtail the ability of the Directors to respond to matters involving the affairs of the company but rather, these limitations are meant to focus the attention of the Directors on the things that are beneficial to the company. Aside from the limitations set forth in the Companies Act 2006, common law also limit the powers of the Board of Directors. There are several cases decided by the House of Lords regarding the scope and limitations of the powers of the Directors.
To give us a clear picture of the limitations of the powers of the company Board of Directors under English law, let us look into the provisions of the Companies Act 2006 and review some of the leading cases decided by the courts regarding the extent of limitations of powers of the Board of Directors.
Section 170 paragraph 3 of the Act states that “The general duties are based on certain common law rules and equitable principles as they apply in relation to directors and have effect in place of those rules and principles as regards the duties owed to a company by a director…” The duties of directors are covered under Chapter II section 171 to 177.
According to section 171 of the Companies Act 2006, “A director of a company must (a) act in accordance with the company’s constitution, and (b) only exercise powers for the purposes for which they are conferred.” In other words, the Board of Directors may only exercise its powers for a proper purpose at all times. According to the court in the case of Harlowe’s Mominees Pty v Woodside2, proper purpose in this case means legal and moral intentions that are beneficial