Companies Act 2006 Explanatory Notes

Relationship between the duties and the company’s constitution

315.Under section 171 a director must act in accordance with the company’s constitution.

316.Companies may, through their articles, go further than the statutory duties by placing more onerous requirements on their directors (e.g. by requiring shareholder authorisation of the remuneration of the directors). The articles may not dilute the duties except to the extent that this is permitted by the following sections:

  • section 173 provides that a director will not be in breach of the duty to exercise independent judgment if he has acted in a way that is authorised by the constitution;

  • section 175 permits authorisation of some conflicts of interest by independent directors, subject to the constitution;

  • subsection (4)(a) of section 180 preserves any rule of law enabling the company to give authority for anything that would otherwise be a breach of duty;

  • subsection (4)(b) of section 180 provides that a director will not be in breach of duty if he acts in accordance with any provisions in the company’s articles for dealing with conflicts of interest;

  • section 232 places restrictions on the provisions that may be included in the company’s articles. But nothing in that section prevents companies from including in their articles any such provisions as are currently lawful for dealing with conflicts of interest.

317.The company’s constitution may also set out the purposes of the company, especially in the case of an altruistic company which has purposes other than the benefit of the company’s members. It is very important that directors understand the purposes of the company, so that they are able to comply with their duty to promote the success of the company in section 172.

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