Skip to content

ACCA Applied Skills · Corporate and Business Law (Global) · Share capital

Zenith plc's members passed an ordinary resolution authorising the directors to allot up to 100,000 shares for five years. The directors later allotted 120,000 shares to a new investor, Ms Tran, who knew of the limit. What is the most likely legal position regarding the excess 20,000 shares?

The excess 20,000 shares were allotted beyond the directors' authority and can be challenged. Members gave authority only up to 100,000 shares, and the investor knew of this limit, so payment or board unanimity does not validate the excess.

  1. AThe allotment of the excess shares was beyond the directors' authority and is open to challenge as irregularCorrect
  2. BThe whole allotment is automatically valid because the shares were paid for
  3. CThe excess shares are valid because the board acted collectively
  4. DThe excess shares become valid once Ms Tran votes them

Explanation

Directors acting beyond the authority given by members exceed their powers. Because Ms Tran knew of the limit, she cannot rely on good faith protection. Payment and collective board action do not cure the lack of authority.

Did you get it right without looking?

One question tells you little. A timed set on Share capital shows your real accuracy, how long you take and where you lose marks.

Practise Share capitalFree diagnostic mock

More Share capital questions