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Transactions between a company and its directors or substantial property transactions

Under the new Companies Act 2006 (section 193), which came into force on 1 October 2007, the rules governing transactions between a company and it’s director/directors have slightly altered. Approval of shareholders by a simple majority is required when the company and a director are involved in a transaction where the asset in question exceeds £100,000, or 10% of the Company’s net assets, whichever is the lesser (with the exception that anything below £5,000 will not be caught under this rule).

It is also worth bearing in mind that it is legitimate to make an agreement conditional, if shareholder approval is given.

This rule (including the need for shareholder approval) does not apply in the case of a company which is being wound-up or which is in administration.

Please note this is only a summary of rules governing ‘substantial property transactions’ and we recommend that legal advice be obtained where such transactions are being considered. We would also recommend that taxation advice be obtained before entering into these transactions.

Asset base Approval
£1m + £100k +
Under £1m 10% of net assets

 

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