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Directors

Authority of directors

Transactions by individual directors

Individual directors cannot bind the company without being given authority to do so.
There are three ways in which this authority may be given:

Express  Where authority is expressly given, all decisions taken are
binding

Implied  Authority flows from a person’s position.

 The person appointed as the managing director has the
implied authority to bind the company in the same way as the
board.

 The managing director is assumed to have all powers usually
exercised by a managing director.

Apparent/  Such authority arises where a director is held out by the other
Ostensible board members as having the authority to bind the company.

 At common law, if a third party acts in good faith on such a
representation, the company is ’estopped’ from denying its
truth: Freeman & Lockyer v Buckhurst Park Properties (1964).

 For these purposes the third party is deemed to be acting in
good faith unless the contrary is proved, i.e. unless he had
actual knowledge of the lack of authority.

Transactions beyond the board’s powers

 Where the directors of a company acting together purport to have authority to
bind the company, legislation provides that this will be given effect to, even
where they have exceeded the board’s authority under the articles of the
company.

 To this effect,s.40 CA 2006 states that the power of the directors to bind the
company, or to authorise another to bind the company, will not be limited by
anything in the company’s constitution, provided the other party is acting in
good faith.

 Having said that, s.40 then goes on to state that even where there is actual
knowledge of the lack of authority this is not enough to count as lack of good
faith (in contrast to the position re individual directors at common law, outlined
above) so on the face of it, any contract entered into by the board of a company
will be binding.

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