Internal management

The internal management of the company is regulated by a document called the articles of association. Although these need not be registered (except for companies limited by guarantee), they must conform to an authorized pattern. They detail rules about such matters as when and at what notice meetings must be held; members' voting rights, and the size of majority required to pass resolutions; issuing of shares; and the appointment, powers, and, removal of directors. Under the Companies Act every public company must have at least two directors, and every private company, at least one. A director need not be a member (that is, a shareholder), but details of any shares he holds must be registered. He is not an employee of the company, but may be paid for his work as long as the members of the company agree to this. He has a duty to exercise a reasonable standard of care and not to make secret profits from company business. If he holds an interest in another firm which the company is doing business, the law requires him to declare interest at a board meeting (meeting of the directors).

Another possible cause of criminal prosecution is insider trading. This means using inside knowledge to gain private profit when buying and selling the shares of the company. Directors and employees of companies are often in a position to know if a company’s shares are likely to rise or fall long before ordinary shareholders. As a result, they could make profits by buying or selling before everybody else, or by selling their special information. In 1990, a New York stockbroker was imprisoned for this offence. The crime was not even recognized in English law until 1967. The 1985 Company Securities (Insider Dealing) Act lays down a maximum penalty of two year imprisonment, but the recent discovery of how widespread this practice is means the penalty is likely to be increased as a deterrent.

1. What are possible causes of criminal prosecution according to the text? Do you know any other causes? Name them and give examples.

2. Do you share the opinion that people accused of insider trading should be imprisoned? Give your pros and cons.

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