Director duty to choose business name registration UK
Section 175 refers to the law that the director has a duty to act in a manner with regards their business name registration UK which helps prevents conflicts in a company formation UK. The director cannot act as an absolute power and make decisions which harm the company. The opportunities presented to the director must also not be manipulated for his/her own sake. Rather, he/she must keep in mind the loyalty to the company formation UK at all times.
However, there are exceptions in this matter when the director has decided to resign from his seat in the current company formation UK and has decided to start his/her own business, which may come into competition with the former business. In such a case, it is more possible that the director will misuse the powers for his/her own gains and that he/she will reject some offers presented to the company, so that his/her interests may avail them in the future. This act is an offence against the law as well as the former company he/she worked for because the director holds the information to the company he/she worked for and can easily surpass it by manipulation of those secrets.
In order to avoid that, there is a law which states that if a director is resigning from its seat and is planning to come into competition with former company, then he/she must clearly state intentions to the board of directors of the former company, so that on the set of competition, the former company may do something to gain a common ground for battle.
The section regarding the conflict of interest also covers this ground in its further sub sections, and the specific part regarding disclosure is given below:
Complete and frank Disclosure of the intentions
The director who intends to compete must provide a valid reason to the former company, so that the company can take some steps. The resigning director, to do so however, requires the consent of the former company's board of directors, so that they may not sue him/her for using their information illegally.
For valid authorization and consent from the company, the director must show or present ideas clearly in front of board of directors of the former company so that they may take appropriate steps to prevent their loss. The term "full and frank" is emphasized so that there are no secrets when it comes to the disclosure of director intentions.
The act of indication only cannot serve for a complete reason. The reasons and the vision behind the director's company are to be fully unveiled. Hence, only stating that "I must remind you that I have an interest in this regard" is not enough. A thorough explanation is required by the board of the former company to give a total consent.
Hence, it is necessary for the director to properly disclose the information which the director has regarding the company.
Procedure of Authorization
There is a proper procedure for the consent of the board for authorizing a director to start his/her own business freely. This is done with the help of voting for the consent. The people who are involved in the voting process are the members of the board of directors. The director who is resigning, however, will not be the part of the process.
Along with the voting, the law of the country also holds a proper place during the decision-making process.
The proper presence of all the board members is also mandatory for an efficient voting process to take place. Only a few members cannot decide for the whole board in the favor of, or against the resigning director.
All of this is covered in the subsection of Section 175, which is 175 (6).
Remedies in case of a Breach of Section 175:
Sometimes, intentionally or unintentionally, a director breaches the law by exploiting an opportunity or by making some decisions or taking a few steps which later on cause a conflict of interest and ultimately result in the loss of the company. For such cases and to hold the offenders and criminals liable, the law has made some arrangements and set some rules, so that an example can be made out of the offending people and so that the losses, which affected the company, can be compensated.
Breach of different duties entails different consequences, which are all punishable in a specific manner. The punishment implemented on an offender of Section 175 is discussed below:
- The act of offence against the Section is actually a breach of trust, as the company entrusts its assets to the director and has an authority to demand right results. So, if the director has manipulated the opportunity presented to the company or has decided in a manner which would not prove fruitful for the company, then the director has actually breached the trust which the company had given. The consequences will also be the same as that in the case of the breach of trust.
- The company which has suffered a loss is entitled to ask for compensation, equal to the profit which could have been made in case of using the opportunity which was rejected by the director. The exact amount of the loss is actually quite difficult to calculate, so the companies seldom demand the amount which is lost due to the wrongful decisions of the director.
However, if a director manipulated an offer, then he/she is liable for the complete amount of profit that was gained from the offer. The company is also entitled to have a complete hold over the assets which were acquired by the director in case of the insolvency of the director.