The board of Ashgrove Ltd is deciding whether to close a loss-making factory that is the main employer in a small town. Under s172 Companies Act 2006, how must the directors approach the decision?

Correct answer: A) They must act in the way 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, having regard to factors including the effect on employees, the community and the company's reputation

Explanation

Section 172 requires a director to act in the way 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. In doing so they must have regard to listed factors, including the likely long-term consequences, the interests of employees, business relationships, the impact on the community and environment, the company's reputation and fairness between members. The duty is owed to the company, not to a particular shareholder, and stakeholder interests are factors to weigh rather than interests that override those of members. Short-term profit alone is not the test.