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Company Law Reform Bill [HL]

I am content to deal with this in that way. As it stands, the amendment covers both subsections (2) and (3), but as we are in Grand Committee, and the amendment will not be pressed, it does not matter for present purposes. It is worth making the point for the sake of clarity later. I shall concentrate on subsection (2) which recognises, as the noble Lord indicated, that not all companies have as their purpose,"““the benefit of its members as a whole””." In the last amendment but one we had a reference to a company established for charitable purposes. Being such a company, it would fall within subsection (2). The noble Lord, Lord Freeman, mentioned the reference in the Explanatory Notes to community interest companies, a new concept that Parliament allowed for not that long ago. These companies are there to benefit objectives other than the ““selfish””—noble Lords will understand the reason for the quotation marks—interests of its members. It is necessary, given that Clause 156(1) takes the stance of wanting to identify the broad starting point for the directors as being to act in the way that they consider, in good faith,"““would be most likely to promote the success of the company for the benefit of its members as a whole””." That is the basic starting point; we have to allow for companies where the selfish interests of its members are not the objective. It is important to have this provision in the Bill. How do the directors judge what the company’s purposes are? I do not imagine that directors of companies which are charities would have any difficulty in realising that they are there to support the interests of the charity and not to make money for the members. But how do they do that? As I said before, it is for the members of the company to set the purposes of the company. They would normally, but not invariably, do that at the outset. It would be, overall, for the directors to determine—again, as a matter of good faith judgment—whether and to what extent the members have set the company purposes other than for the benefit of its members and, if so, what those purpose are. There are a number of places where they would find that in the constitution, by means of shareholder resolutions or some particular evidence. For example, if what has been established is a community interest company, which requires a particular form of registration, that will show the directors the sort of the company they are involved with. I do not anticipate that directors would have difficulty in knowing what they were directors of. That, I hope, is an adequate explanation of the purpose behind the subsection.