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Directors' Duties and Consequences
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Directors' Duties and Consequences
📚 Part 1: Directors' Legal Duties
1. Which of the following is NOT a legal duty of company directors under the Companies Act 2006?
Act within their powers
Promote the success of the company
Guarantee company profits
Exercise independent judgement
2. A director must avoid conflicts of interest. This means they should:
Never do business with competitors
Declare any personal interests that conflict with company decisions
Only work for one company at a time
Always choose the cheapest option
3. Which stakeholders must directors consider when promoting company success? (Select all that apply)
Shareholders
Employees
Customers
Local community
Environment
4. Directors have a duty to exercise reasonable care, skill and diligence. This is measured against:
What any reasonable person would do
What a reasonably diligent person with their knowledge and experience would do
What the most successful directors do
What shareholders expect
⚖️ Part 2: Consequences and Scenarios
5. If a director breaches their duties, they may face:
Personal liability for company losses
Disqualification from being a director
Criminal prosecution
Civil action for damages
6. Sarah is a director who uses company funds to pay for her personal holiday costing £5,000. What type of breach is this and what might happen?
7. Complete the sentence: A director who trades whilst the company is insolvent may be held __________ liable for the company's debts under __________ trading provisions.
8. Explain why directors have a duty to keep adequate accounting records and what could happen if they fail to do so.
🎯 Part 3: Application and Analysis
9. Case Study: James is a director of TechCorp Ltd. He discovers that a major client will not renew their contract (worth £2 million annually). Before announcing this to shareholders, James sells his personal shares in the company. Analyse the legal and ethical issues with James's actions.
10. Extension Activity: Research and explain one real-life case where a director was disqualified for breach of duties. Include the company name, what they did wrong, and the consequences.
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