Restrictions on Powers of Board in a company

Here are the notes on restrictions on the powers of the board in a company, along with some MCQs and answers:

Notes

  • The board of directors is the governing body of a company. It is responsible for the overall management of the company and for making decisions on its behalf.
  • The powers of the board are set out in the Companies Act 2013. However, there are certain restrictions on these powers.
  • These restrictions are designed to protect the interests of the shareholders and to ensure that the board acts in the best interests of the company.

Some of the restrictions on the powers of the board include:

  • The board cannot make any decisions that are inconsistent with the Companies Act 2013 or the company’s articles of association.
  • The board cannot make any decisions that are outside the ordinary course of business.
  • The board cannot borrow money that exceeds the company’s authorized capital.
  • The board cannot sell, lease, or otherwise dispose of the whole or substantially the whole of the company’s undertaking without the approval of the shareholders.
  • The board cannot remit or give time for the repayment of any debt due from a director.

MCQs

  1. Which of the following is not a restriction on the powers of the board of directors?
    • The board cannot make any decisions that are inconsistent with the Companies Act 2013.
    • The board cannot make any decisions that are outside the ordinary course of business.
    • The board cannot borrow money that exceeds the company’s authorized capital.
    • The board can sell, lease, or otherwise dispose of the whole or substantially the whole of the company’s undertaking without the approval of the shareholders.
    • The board cannot remit or give time for the repayment of any debt due from a director.

The answer is (c). The board cannot sell, lease, or otherwise dispose of the whole or substantially the whole of the company’s undertaking without the approval of the shareholders. This is a restriction on the powers of the board in order to protect the interests of the shareholders.

  1. The board of directors of a company wants to borrow money from a bank. The amount of money that the board wants to borrow exceeds the company’s authorized capital. What should the board do?
    • The board should go ahead and borrow the money.
    • The board should ask the shareholders for permission to borrow the money.
    • The board should not borrow the money.

The answer is (b). The board should ask the shareholders for permission to borrow the money. This is because the board cannot borrow money that exceeds the company’s authorized capital without the approval of the shareholders.

  1. The board of directors of a company wants to sell one of its subsidiaries. The subsidiary generates 20% of the company’s net worth. Does the board need the approval of the shareholders to sell the subsidiary?
    • Yes
    • No

The answer is (a). Yes, the board needs the approval of the shareholders to sell the subsidiary. This is because the sale of the subsidiary would be considered a disposal of a substantial part of the company’s undertaking.

Answers

  1. (c)
  2. (b)
  3. (a)