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Companies Act 2006

Section 171: Duty to act within powers

323.This duty codifies the current principle of law under which a director should exercise his powers in accordance with the terms on which they were granted, and do so for a proper purpose. What constitutes a proper purpose must be ascertained in the context of the specific situation under consideration.

324.This duty codifies the director’s duty to comply with the company’s constitution. The constitution is defined for the purpose of the general duties in section 257. As well as the company’s articles of association it includes:

  • decisions taken in accordance with the company’s articles; and

  • other decisions taken by the members (or a class of them) if they are to be treated by virtue of any enactment or rule of law as decisions of the company, for example a decision taken by informal unanimous consent of all the members.

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