9. Duty to act within constitution and powers

The Companies Act 2006 (CA 2006) requires directors: to act in accordance with the constitution (defined s 257) and to exercise powers for the purposes for which they are conferred. This chapter focuses on s 171. The discussion covers the constitutional division of power within a company, types of authority, statutory protection of third parties, and exercise of a power for an improper purpose. Much of the discussion is of the important agency rules which govern directors’ authority, considering in particular the extent to which third parties can rely on the apparent or ostensible authority of an individual director or directors. The circumstances in which third parties are put on inquiry are considered. The statutory protection afforded to third parties by CA 2006, s 40 is also examined. The proper purpose doctrine is an important constraint on abuse of power by directors and the application of the doctrine is addressed in detail.