ACCA Applied Skills · Corporate and Business Law (Global) · Loan capital
Zentra Ltd is a company whose constitution places no restriction on borrowing. Its board decides to take a bank loan of $2 million to fund new equipment. Under the general rule of company law for a registered company, who normally holds the power to borrow on the company's behalf?
The directors, acting as the board, normally hold the power to borrow because the constitution delegates management powers to them. Shareholders do not need to approve each loan by special resolution, and neither the auditor nor the company secretary has general authority to commit the company to borrowing.
- AThe directors, acting as the board under the powers given to them by the constitutionCorrect
- BThe company auditor, since the loan affects the financial statements
- CThe company secretary, as chief administrative officer
- DThe shareholders only, by a special resolution in every case
Explanation
A company has implied or express power to borrow, and day-to-day management powers are normally delegated to the board by the constitution. Shareholder approval is not needed for every loan, so requiring a special resolution in every case is wrong. Auditors and secretaries have no general borrowing authority.
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