Section 172 for register a new company

If you buy a limited company from companies house and during a trade or a business, the most important factor must always be kept into consideration is the factor of trust. If the people who are conducting the business do not trust each other, there can never be useful actions which will help both the parties to grow. We can say that the two main factors which help in a success of running a business once you register a new company in the UK are honesty and trust. The scale on which the business is conducted does not matter when it comes to the matters of trust.

In a company too that you buy as a limited company from companies house, the factor of trust and reliance on the decision of the other party is a major factor that is often tested. If there is a strong bond of faith between the investor and the company, then more and more people will be willing to invest in the company which will cause the fame as well as the revenue of the company to reach new heights. Running a company is a very grave matter and one you should consider if thinking to buy a limited company from companies house. The lives of all the people who are directly or indirectly connected to the company are affected by the decisions that the people responsible for the job take. If there is a wrong decision made, the penalties are paid by all the people who are with the company, whether they were directly involved in the decision making or not. Hence, the law forbids every other person to make decisions for the company.

The group of people who have to pass various tests to prove their worth for their position and seat in the office are the directors. The director is person who acts as a mini head for the portion of the company which he is entrusted with. So, the burden of responsibilities is great on his shoulders.

As the director has proven his worth and it is established that he is eligible to hold the office, the legislation entrusts him to make the right decisions in the best interest of the company. So, the job of the director also includes being honest with his thoughts whenever the need for determining a single direction from various choices is presented. He must choose the best possible option, in the interest of the company as well as the interest of its members. He must act in a manner that he is deemed trustworthy by his fellows under all conditions. 

Section 172 of the constitution gives us the requirements for the decision making process. The detail of the actions which result in its breach, the duty of disclosure and the remedies in case of a breach are described below.

Section 172

In a nutshell, Section 172 tells us about the thinking that must be present in the mind of a director while taking a step for the company. It states that the director must act in good will with the thought of benefit of the company and its members.

Breach of Section 172

Breach refers to the act which goes against the law. It is a crime which is punishable by law. The punishments vary from case to case. A breach of any section results in the penalty that the whole company is deemed fraudulent and it gives out a bad image to the public, in addition to the fine or disqualification by the court.

The breach of Section 172 occurs whenever the director fails to even think about the consequences of his actions. This infringement is according to the old law and it says that the aloof behaviour of the director regarding the company’s well being is classified as an offence against the Section 172. So, the breach occurs when the director fails to pay attention to the benefit of the company and to weigh all the pros and cons before entering a deal with another party.

If a director actually considered the question regarding the company’s benefit, but still failed to act in the manner which would be good and fruitful for the company, then too he has breached Section 172 and is liable for his actions.

It follows that a breach is considered whenever the director fails to follow any of the six ESV factors, which include thinking about:

  • Long term consequences of the decision on the company
  • The interests of the subordinates
  • Keeping good relations with suppliers, creditors and other related people
  • Result of the company’s actions on its surroundings, people and nature alike
  • Keeping up the good reputation of the company
  • Acting on an equal level with all the employees

If the director breaches any of these, he breaches the section

The court, however, keeps a differential approach while assessing the importance of each factor. It will not second guess the position of the director when deciding in the company’s best interest.

Director’s Duty of Disclosure

To disclose means to bring on the screen what is hidden. Here, it means informing the superiors of a breach which has occurred in the company.

The director has a duty to disclose any act performed by himself or his fellow directors. Usually, it so happens that it is difficult to pin point the loss which is caused by the director, so the law usually holds the director for accountability on the accusation of failure of disclosure.


The breach in this case is actually a breach of trust, so the remedy will be the same as under Section 178, that is, the remedy in case of a breach of trust.

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