This guide is based on UK law as at 1st February 2010, unless otherwise stated.
Where a company or any of its subsidiaries enters into a transaction with a director of the company, the rules on disclosure, shareholder approval, loans and related parties may apply.
Whether they do or not, information on such transactions may need to be included in the notes to the annual accounts.
Loans and quasi-loans must be set out, as must the directors’ indemnities (See: Indemnity and insurance protection, an OUT-LAW guide). In addition, details are required of any transactions or arrangements where a director has a ‘material interest’.
The obligation to disclose goes away if a director’s transactions and arrangements in a financial year add up to no more than the higher of £1,000 or one per cent of the company’s net asset value – subject to an overall limit of £5,000. Apart from that minimum level, what is ‘material’ is a question for the board to decide when putting the accounts together. If the board’s decision is reasonable and made in good faith, it cannot be challenged.
This requirement to disclose can be a relevant factor in deciding whether or not to go ahead with a transaction.