Acting Within Powers: Why Your Company’s Rulebook Matters

January 23, 2026
|In COMMERCIAL AND CORPORATE
|By admin

The Directors’ Duties Series – Part 1

When Annie joined the board of a growing fintech start-up, she didn’t think much about the company’s Articles of Association. After all, wasn’t that just “boilerplate” paperwork filed years ago?

That assumption cost her.

Months later, Annie approved a new share issue to an investor – a move later challenged by other shareholders. The problem? The Articles required both board approval and a special shareholder resolution, which she hadn’t obtained.

The court found she had acted outside her powers under section 171 of the Companies Act 2006. The share issue was set aside, and Annie faced a claim by the company for breach of duty.

What Does Section 171 Require?

Directors must:

  • Act in accordance with the company’s constitution, which includes the Articles of Association and certain formal resolutions, and may also operate alongside other governance documents such as shareholders’ agreements; and
  • Only exercise their powers for the purposes for which those powers were conferred.

It sounds straightforward, yet this duty is frequently overlooked, particularly in fast-moving companies where “commercial urgency” tends to trump formalities. But failing to check your authority before taking key decisions can unravel months of work, create shareholder disputes, and expose directors personally to claims.

How to Stay Compliant

  • Know your rulebook – Regularly check your company’s constitution before important decisions: issuing shares, signing material contracts, restructuring the company, approving major transactions, or any action that might require shareholder consent.
  • Document your authority – Ensure that minutes and resolutions clearly record board decisions.
  • Seek early advice – If you’re unsure, take legal guidance before acting, particularly where the Articles or shareholders’ agreements contain bespoke provisions. It is far easier to confirm authority than to unwind an unauthorised decision.

Directors who understand where their powers begin and end not only protect themselves, they build credibility and trust in the boardroom.

 

How We Can Help

At Chan Neill Solicitors LLP, we regularly advise company directors, boards, and shareholders on governance, compliance, and risk management under UK company law and related legislation.

If you are uncertain about the scope of your powers or other obligations as a director, or wish to review your company’s governance framework, Articles, board procedures, shareholders’ agreements, or compliance processes, our corporate team can advise on practical steps to ensure you meet your duties and manage risk effectively.

Get in touch with us to discuss how we can help you and your business.

 

Next in the series:

Promoting the Success of the Company (s.172) – balancing the company’s success with wider stakeholder interests.

 

Disclaimer:
This publication is intended for general information purposes only and does not constitute legal or professional advice. You should not act upon the information contained in this article without obtaining specific legal advice. Chan Neill Solicitors LLP accepts no responsibility for any loss which may arise from reliance on information contained herein.