FLK1 · Multiple-choice practice
FLK1 Business Law — Question 9
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Ambrac Ltd is a private limited company, which has just two shareholders and two directors. John owns 51% of the shares. Jane owns 49% of the shares. They are both directors. John wishes to make a significant loan to Ambrac Ltd. Which of the following statements is correct?
Answer and explanation
Correct answer: C. John can make a loan to Ambrac Ltd but he must get the consent of Jane.
Under the Companies Act 2006, a director of a company, whether public or private, must not do anything which places him in a position of conflict with the interests of the company. As such, directors are prohibited from making a personal profit from transactions involving the company, unless they have the consent of the other directors or members of the company. In this case, John wishes to make a loan to ABC Ltd, in which he is a director and shareholder. Therefore, he must obtain the consent of Jane, the other director and shareholder, in order to avoid placing himself in a position of conflict with the interests of the company (s.175 CA 2006). D looks also correct, but John will not be able to vote his shares in a matter where he has a personal interest, therefore, saying all the shareholders makes the answer less suitable.
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