FLK1 · Multiple-choice practice

FLK1 Business Law — Question 4

Question

A limited liability company has two directors, Alex and Ben. Alex resigns from the company, but does not inform Companies House of his resignation. Ben continues to act as the sole director and signs a contract with a supplier for the purchase of goods. The goods are office equipment consumables, like ink cartridges and printing paper, and the seller is one of the company’s regular suppliers. Which of the following is true?

The contract is void because Alex did not resign properly.
The contract is void because there is only one director in the company.
The contract is valid and binding because Ben is still a director of the company.
The contract is valid and binding only if Alex’s resignation was properly made.
The contract is valid and binding as it relates to the purchase of goods.

Answer and explanation

Correct answer: C. The contract is valid and binding because Ben is still a director of the company.

The contract is valid and binding because Ben is still a director of the company. A company can continue to function with a single director, and another director’s resignation does not become effective until it has been registered with Companies House. Therefore, regardless of whether Alex has resigned but not informed Companies House, the company can still be bound by contracts entered into by the remaining director. Remember that each director is de-factor authorised to represent the company (they are the company’s agent) and any internal issues with decision making do not affect third parties (s.40 Companies Act 2006)

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