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Acting for companies, directors and shareholders
A company is a separate legal person from its directors and shareholders, and it is the company, acting through its board, that is the client. Acting for the company and an individual director or shareholder on the same matter, or for a buyer and seller of a business, creates a client conflict unless a genuine exception applies, and the solicitor must protect confidentiality and act only on properly authorised instructions.
The rule
A company is, subject to very limited exceptions, a legal entity distinct from its shareholders and directors, with its own property, rights and liabilities (Prest v Petrodel Resources Ltd, para 8). Where a company is instructed, it is the company, acting through its board under the model articles' management power, that is the client, not its directors or shareholders individually unless they are separately retained (Companies Act 2006, s 16(2)-(3); Model Articles, art 3). A solicitor does not act where there is a conflict of interest, or a significant risk of one, unless the clients have a substantially common interest or are competing for the same objective, all clients give informed consent in writing, effective safeguards are in place where appropriate, and the solicitor is satisfied it is reasonable to act for all of them (SRA Code of Conduct for Solicitors, para 6.2, (i)-(iii)). A solicitor keeps the affairs of current and former clients confidential unless disclosure is required or permitted by law or the client consents (para 6.3), and acts only on instructions from the client or someone properly authorised to give them on the client's behalf (para 3.1).
Exam trap
A director instructs a solicitor 'on the company's behalf' but the transaction (such as a substantial property transaction with the director) actually benefits the director personally: the client remains the company, and acting for the director too on the same matter without an exception applying would be a client conflict.
Show distinctions and misconceptionsHide
- Acting for the company and for a director personally on the same matter (such as the director's service contract) is a client conflict, because the company's and the director's interests are not the same even though the director sits on its board.
- Acting for the buyer and seller of a business is a client conflict to which the substantially common interest exception does not apply, because the parties are negotiating against each other on price and terms.
- Several founders setting up a company together may have a substantially common interest and so be acted for jointly, with informed written consent and safeguards where reasonable; this differs from a buyer and seller, whose interests are opposed rather than aligned.