Notifications under section 317 (Companies Act 1985) - directors' interests in contracts

(Note: this guidance page is being re-written in view of recent law changes. Some provisions referred to may have been repealed. UKcorporator's incorporation process however remains perfectly valid and effectual.)

The law endeavours to ensure that company directors do not take improper advantage of their position by secretly entering into (or having an interest in) contracts with the company of which they are a director.

To this end, subsections (1) and (2) of section 317 of the Companies Act 1985 provide as follows:

317 Directors to disclose interest in contracts


(1)
It is the duty of a director of a company who is in any way, whether directly or indirectly, interested in a contract or proposed contract with the company to declare the nature of his interest at a meeting of the directors of the company.


(2)
In the case of a proposed contract, the declaration shall be made -


(a)
at the meeting of the directors at which the question of entering the contract is first taken into consideration; or


(b)
if the director was not at the date of that meeting interested in the proposed contract, at the next meeting of the directors held after he became so interested;
and, in a case where the director becomes interested in a contract after it is made, the declaration shall be made at the first meeting of the directors held after he becomes so interested.

Subsections (3) and (4) deal with general notices which can be given by a director in relation to all contracts with a certain company or person. Subsection (6) ensures that transactions of the kind referred to in section 330 of the Companies Act 1985 (prohibition of loans, quasi-loans etc to directors) fall within the scope of the duty created by subsection (1). Subsection (7) provides that a director who fails to comply with the section is liable to a fine. Subsection (8) ensures that the section applies to shadow directors. (The term 'shadow director' is defined in section 741(2) as a person in accordance with whose directions or instructions the directors of a company are accustomed to act (subject to certain exceptions)). Subsection (9) makes it clear that the section does not prejudice the common law rules restricting directors from having an interest in company contracts.
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