18. Corporate governance

The division of power

Section 51 of the Act deals with the division of powers between the general meeting and the board of directors, and section 52 with delegation to committees and managing directors. In general, the board manages the business, and the members in general meeting keep the powers the Act or the articles give them, such as altering the articles, appointing and removing directors, and receiving the accounts. Section 230 places limits on the powers of directors.

The tools of accountability

Election and removal: the members appoint the directors and can remove them by ordinary resolution under section 222.

Duties: sections 231 to 235 hold directors to good faith, proper purpose, care and skill, and the avoidance of conflicts.

Disclosure: section 238 deals with contracts in which directors are interested, and the company keeps a register of directors' holdings under section 248.

Accounts and audit: the directors must prepare annual financial statements and lay them before the members, with the directors' report, under the provisions of Part XII.

Investigation: inspectors may be appointed to investigate a company's affairs under sections 268 to 277.

Minority remedies: Part XI protects members against abuse by those in control.

Other stakeholders

Section 231(3) lets directors consider employees' interests as well as members'. A director appointed by, or representing, a special class of members, employees or creditors may give that class special, but not exclusive, consideration.

Codes of practice

Many countries add codes of corporate governance for listed and large companies. They recommend independent non-executive directors, audit committees and separating the roles of chair and chief executive. Check whether any code or regulator's rules apply to the company in question.