Company Law Essay

free essayCompany law is one of the most important laws in terms of the economy of any nation. This is because it determines what people perform certain duties in the corporate organisations. It also determines the rights of the stakeholders, whose stakes are affected by the people in power. This essay is based on the idea of company law in the UK. In every company, there occur some conflicts due to the lack of unity in thoughts, ideas and expectations. This is mostly observed in the private sector. When one member of a company does not know what to expect from another, the situation becomes disastrous. This is because there are some people who may take advantage of this and neglect their duties. As for the companies in the UK, all the members have to adhere to certain laws. This ensures that there are unified expectations of all the company members, which is a huge advantage in terms of the major aim of corporate organisations that is profit making.

The Companies Act of 2006 is the major act, according to which companies have been governed over the years. However, there are numerous changes that have occurred in terms of the laws stated in the act. These changes can be attributed to those which take place in the world today. In this essay, the role of directors has been made the major topic for discussion. In most companies, the employees and shareholders do not know the duties that their directors are expected to perform. This is because the power may create a distance between these two categories of people and make some of them forget the rights that they have towards others (Tomasic 2011). For this reason, the essay has been made more specific. It deals with the duties of the directors towards the employees.

The regulation on insolvency is also an important tool for conducting business in public companies. Owing these laws, the companies are trusted and believe that it is the best means of conducting a business in the country. There are some people that may argue that companies should not be given the importance, attention and priority that they receive. However, this is a fact that can be proven wrong by most of the recent statistics. According to the research, public companies in this country have provided jobs to more people than any other organisation has done. Over the years, companies have been an important tool in the maintenance of welfare in the UK; a fact that cannot be disputed. For this reason, there is a great need to have laws, rules and regulations, by which every company should be governed. This ensures that there is no conflict of interest, and guarantees that the largest employers in the UK are protected from ambiguity that may result from unclear allocation of duties and roles (Romano 2005). This explains the need to spell out the duties of directors in a public company.

As for the governance, it is an issue associated mostly with employees in the respective companies. They are catered for along with other stakeholders such as suppliers (Gratton 2011). The laws that govern the public companies are divided into two major groups. The first one deals with the governance in the companies while another one basically spells out the roles and rights of these groups of people. The constitution of a company should involve the input of all shareholders through the voting process (Williams & Conley 2007). However, after the voting has taken place, it is the board of directors that are in a position to make major decisions in the company. Although they follow written laws, there are some situations in which their uninterrupted input is required. This is the reason why there has to be an election that can ensure that the most trusted people are in the board of directors. The power of the directors is a tool for managing businesses. However, their level of openness and transparency has to be regulated as well. Such power may tempt some of the directors create acts that are not in the best interest of other stakeholders.

The relationship between the directors and employees is also an issue that is not dealt with on the part of the shareholders (Worthington 2001). First, it is important to realise that company law does not have provisions in which the specific laws governing a company are made. Instead, it creates a platform and enabling environment, in which the rules and regulations can be documented in the company’s constitution. It is the shareholders who have the ability to decide which rules are documented and what people are there to ensure their appropriate execution. During the annual general meetings, the employees have the right to amend the constitution and implement laws that they believe are best for the company. This is done by the voting exercises. In some cases, it might be decided that the voting process does not work for the shareholders. This is when the court may be involved in the business of the company (Ireland 2011).

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There are a set of duties, to which directors are subjected being expected to be loyal to the interests of all shareholders. These duties cannot be separated from their relationship and roles of the employees. This is because it is the employees that enable them to perform these duties. Without the employees, the most important work in the companies cannot be performed. Therefore, it is impossible to alienate the roles of the directors to the shareholders to the employees. A good workforce ensures that the directors are able to deliver the promises in terms of the roles they are given during the annual general meeting. Apart from this automatic role towards the employees, company law has made provisions in which the roles and duties of these directors to the employees have been spelled out. This ensures that the employees know when their rights are violated and creates a line between the director and the employees so that the former knows they are breaking the law. Over the years, this has been a vital tool for ensuring that employees in all companies are well protected from the selfish interests of some directors, which is as disastrous as sheer negligence and denial of rights.

Duties of the Directors

According to the Companies Act of 2006, there are several duties that have been allocated to the directors towards their employees. However, these have not been spelled out separately. In total, there are seven duties, which the directors are expected to fulfil in the company. In sections 171 to 177, these duties have been documented in a general manner, according to which all companies in the UK can be governed. When the directors breach the contracts, which they are bound to, the company can use insurance, through which compensation can be demanded for such actions (Ireland 1996). This does not only apply to the activities that may jeopardise business. It also includes the negligence of duties by the directors to the parties that are mentioned. Employees are a major topic of discussion in this regard. However, the consequences that a director can be faced with in case they breach the contract have not been clearly documented. This is because there is a wide range of possibilities, by means of which the directors can breach their contracts. Therefore, this is where the court comes in. Common law is used to determine the remedies that must be applied in the event of contract breaching (Loughrey, Keay & Cerioni 2008).

Article 171 explains the duties of the directors with regards to the proper use of their power. This article has indicated that the directors should not use their power to perform activities that are not in the best interest of the company. This is a direct role of the employees. For a company to succeed, it is important to satisfy the needs of the workforce. For example, ensuring that the employees receive timely payments guarantees that they feel well compensated for their services. At the end of the year, they feel that they owe the company due to the proper treatment that they have received. In some companies, the salaries of the employees may be delayed by some of the directors. When this happens, they take this money and invest it elsewhere. Then, they pay the employees at a time that is not agreed upon. This section ensures that employees are protected from these malpractices (Sharpe 2010).

The next role of the directors is expressed in the all-important duty of care. This is the part that explains the importance of having people in power. First, it states that the directors must show competence that should come along with the power that they are given. In other words, the directors have been given the power and resources that suggest that they are above everyone else. Therefore, they should not exhibit the same competence that is exhibited by a common employee. This is because they are expected to ensure that the employees have a place to work for the next day. The managerial duties as well as the making of major decisions in the company should not be the obligation of the employees. Instead, the workers should simply be engaged in the work and duties that they have been allocated in their various fields of work. All the management work should be done by the managers, who perform the roles of the directors in this case (Grinyer et al. 1998).

The managers are not expected to betray the company, since the power has been granted to them. In short, if anything goes wrong, it is the directors that are responsible for this or that situation. There is no situation in which they are expected to blame the employees in case of any wrongdoing. If something goes wrong, the directors should be fully accountable. This is because even the acquisition of employees is a process with which they are entrusted (Buchheit 2008). Therefore, if some employee fails to perform work properly, this shows that the director has failed in the recruitment, training or monitoring process. This provision of company law ensures that the employees are not charged with the task of thinking about future endeavours that may hugely affect the company’s performance. This enables them to concentrate on various fields of work and leads to higher production, which is a major aim of the UK government, judging from the various amendments that have been made to this act. They have mostly been aimed at imposing most of the blame on directors and ensuring that their roles are well mentioned according to the constitution of companies (Buchheit 2008).

There are some directors that may violate the all-important duty of care. These are required to offer compensation, according to the decisions that are made in court. However, there are some situations, in which compensation is not demanded by the court (Arden 2010). In some cases, the directors may be seen to neglect their duties. This is mostly an offence of omission. In such a case, they are asked to compensate the stakeholders only if they behaved dishonestly. Section 1157 suggests that if the directors are transparent and accountable, they should be relieved from offering the compensation to the company. However, this does not mean that they can easily get away with malpractices. Instead, they have to prove that they were honest in their acts of negligence. In some cases, directors may neglect their duties in a bid to have personal gain from the situation. This is an example of a case when compensation has to be demanded. In case of the employees, there are various roles that a constitution of a company must explain concerning the treatment of employees (Arden 2010). It is under this constitution that an employee can sue a director in the court. Since there are different constitutions in different companies, the employee has to take proof to the court. They have to show the part of the constitution that proves that their rights have been violated. When it is established that the director knowingly neglected their duties towards the employee, compensation can be demanded for all the damages caused.

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The Company Director Disqualification Act also has a provision for the employees. The directors are expected to supervise the employees in a manner that ensures the business is well protected (Kiarie 2006). Another way, in which this can be discussed, is in terms of the risks that are involved in any business. For example, when the board of directors receives a warning of an impounding threat, it is in the best interest of the company that they act accordingly in this situation. In the exchange business, it is possible for the directors to make mistakes that may be hard to deal with. For example, after receiving the information on a risk that may threaten the welfare of the company, the directors may decide not to act according to this information. As a result, the company may fail in a way that it may not find its way back. Therefore, the decisions by the directors should be taken seriously. This is a position in which they are ensured that they have the power to influence as many people as possible. Employee supervision is one of the roles that should be mentioned in this section. The employees play a role of performing the duties that are allocated to them by the directors. Therefore, the results achieved by a company depend on the input of the employees from a direct perspective (Keay 2006). However, a deeper analysis proves that the decisions in terms of the supervision of these employees are the major causes of the successes and failures that may accrue to the company. This is because the employees are engaged only in the acts that have been put in their jurisdiction and power. Therefore, the shareholders expect the directors to supervise the employees in the best way possible. Some analysts may think that supervision of the employees has negative implications. However, this is a right to which they are entitled. It is also a duty that the directors have to perform towards the employees. If the directors fail to fulfil this duty, they can easily be disqualified and relieved of their duties (Schwartz 2011).

The other duty that the directors have to perform towards the employees is the duty to ensure perpetuation of the business by avoiding any conflict of interests. In the personal lives of the directors, there are numerous opportunities that may help them in achieving this. They are allowed to seize these opportunities, as long as they do not cause a conflict with the employees of the company. In short, they cannot utilise the opportunities that the company can utilise (Keay 2007). If this happens, it would mean that they have put their self-interest ahead of the interest of the company. There could be a possibility for the growth of competition. The goal of the directors is to ensure that the company is able to counter any competition that may arise from other companies. In this way, they will be able to ensure that there is perpetuation of the business.

The advantage that the employees can derive from this is that their place of work becomes permanent. This is because it is in the hands of people that do not have personal interests. Instead, they ensure that they perpetuate the business long enough to ensure that the employees receive their monthly pay. In the UK, this is an important part of company law. It ensures that all employees work for companies that are well managed. In short, these laws strive to ensure that it is in the best interest of the directors to promote business success. In this way, they protect the public companies the way that they should. Section 175 clearly explains that directors must get the consent of other stakeholders before engaging in a competing business (Smith 1998). If it is an opportunity that the company can utilise, the director cannot utilise it without the consent of other shareholders. In such a way, they can be relieved of their duties before they use the company insight, knowledge and resources to enrich themselves.

The attitude of the directors towards the employees is also controlled by the law. In section 177, it has been stated that the directors must not relate with outside companies who have their interest at hand (Stout 2002). For example, the director may have stakes in another company. Then, there can occur a situation, when he/she is required to authorise transactions between this company and the one that he/she directs. In such an occurrence, the director is expected to discontinue the transaction or wait for another party to perform that duty. This is because they already have self-interest. For example, in the negotiation of terms between these two parties, the director might favour the company, in which he/she has stakes. This way, they would be gaining more. Such a scenario is the one that the law seeks to avoid. Another example is a situation, when a director may be engaged in a business of selling furniture. The company in which he/she is the director may need certain pieces of furniture (Sherwood 2008). This director is not allowed to accept such a transaction. This is because there is a similar interest. Alternatively, the director is required to inform other directors that do not have a conflict of interest (Bruner 2010). These directors are the ones who decide whether the deal should go on or not. The result of this law is that the directors manage the company as though it is their own (McDonnell, Lamare, Gunnigle & Lavelle 2010). This ensures that the company makes the decisions that are best for its interests. In return, most of the attention is given to the business. The employees are part of the business. If directors have undivided attention, the employees are able to enjoy the comfort that comes along with certainty and stability.

The other section states that the directors should function to promote the general success of the company. This is for the best interests of all the stakeholders, including the employees. The compensation, exposure and remuneration of the employees are determined by the success of the company (Keay 2010). Therefore, it is in their best interest that the directors promote the success of the company. When this is achieved, they will be able to grow and develop along with the company. The other description that has been given to this is fairness. For the shareholders, the directors are supposed to act in a way that promotes fairness for all the shareholders (Carmeli 2003). This explains the issue related to the performance of the employees. Directors perform the role of treating all their employees fairly. There should be no employee who may feel less important than the others. This is provided by the specific section of the act. This means that the promotion opportunities should be the same for all employees. They should also be compensated according to the work that they conduct. Instead of being fair to some employees and not others, the directors should ensure that they treat all their employees as equally important. At the end of the day, this ensures that there is no bad mood among the employees (Zingales 2000). Each of them values the input and ideas of the others.

This duty of the directors can be considered ambiguous. This is because the promotion of success in a company can be considered ambiguous. Sometimes, people might have different views on activities that promote the success of a company. Sometimes, this is a duty that may not be directly related to the activities of the employees. A director might believe that the firing of a certain employee is what is best for the company. This is a decision that may not have any significant effect in terms of the general success of a huge company. In the long run, the employees are not left with much of a choice (The Law Commission and the Scottish Law Commission 1999). According to this section of the constitution, the employees cannot develop significant leverage on their claims as they are not treated fairly. This is the reason as to why the court has to be involved in some of the matters concerning the behaviour and fulfilment of the duties of directors towards their employees. For example, an employee with great experience, who has served the company for a long time, could be fired on the basis of a petty issue. If he/she proves to the court that the firing was not fair, it is possible to receive compensation, as well as get their job back. Therefore, the law cannot be considered insignificant. Instead, it directs and controls the activities that the directors choose to get involved with. It also ensures that the employees have a provision in the law, whereby they can lay their claims when they feel that they have been treated unfairly.

In a different section of the constitution, the directors are expected to exercise independent judgment (Parkinson 2003). This is an issue that affects the employees as directly as possible. The best way to explain this is through an example. An employee may be involved in an activity that is considered illegal by the company. This may cause the company to take harsh measures towards this employee in a bid to change him/her. The other reason for this is the fact that they may be trying to make the employee act as a role model for all the others. After this punishment, another employee may behave in the same manner. The directors are supposed and required to exercise independent judgment which is completely independent from the previous judgment that was made towards another employee. In short, only the rules that are documented in the constitution can be used to make such decisions. The advantage of this is that the directors cannot act on the basis of personal feelings and views (Jensen 2001).

In case a director has a personal grudge with an employee, they are restricted by these rules and laws. They are required to act according to the mandate that they are given. In the board of directors, none of the directors is expected to affect the decision and views of the others, especially in relation to a single employee. The duty to be fair to all the employees is one of the most effective duties for the promotion of harmony at the workplace. With the changes that take place in the corporate world, there is a great need for all the companies to ensure that their customer service reaches a certain level. Satisfying of consumers requires a company to have a satisfied workforce. In turn, this is achieved by certain measures taken by the directors towards their employees. Apart from the fact that they should treat them well, they should also ensure that they are all treated equally. This eliminates unnecessary and unwanted competition at the workplace. Successful companies in the modern world consider that they place great value in a satisfied workforce (Hansmann & Kraakman 2001).

Companies’ directors are required to act in the best interests of shareholders and employees. During the formation of companies as well as the drafting of the constitution, companies ensure that this provision is present. The law may not have a general way of ensuring that the interests of employees are well catered for (Lee 2005). However, they cannot help in drafting of the constitution. This is because different companies deal with different products and rules. However, the companies are the ones which draft the rules and laws that spell out the requirements of the employees set by the directors of the companies. These laws are created differently for different companies. As it has been mentioned above, the treatment of the workforce determines the success that the company experiences (Sherwood 2008). This explains why there are more successful public companies than others. Some of the businesses value and appreciate the efforts of the employees. In return, the employees perform their duties in ways that promote the quality of the goods and services that the company produces and provides. This enhances the general performance of the company.

An important thing for all the employees is to know the general provisions of their rights in company law, as well as the specific laws stated in the constitution of the company. This way, they would be in a position to know when they are treated fairly. If they go to court, it would be easier to make their claims. With time, some amendments can be made to the law with regards to the ideas that are generated by the employees. These could be notions that concern their welfare. The changes that are made to these laws should not concern the employees. They should be made by shareholders, directors, suppliers and other parties (Wallman 1991). There is a general tendency of employees to be denied their rights. This is because most people are afraid that they might lose their jobs if they air their views. However, the best way to ensure that the employees receive fair treatment is to express their views in a written form. This can only be made possible if the employees become as vocal as possible.


The above essay made it clear that directors have important duties to perform towards their employees. This especially concerns the relationship between companies and outside parties. This is an approach that may leave most employees unprotected. In addition, the unemployment rates in most nations have made employees desperate making their rights the least important. This explains the importance that the UK Company Law has placed on the duties of directors to the employees. This has proven to be an important tool in ensuring that all companies perform in the ways they are expected to. As a major source of generating wealth in the UK, public companies deserve the attention that they receive from the government.

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