Rights and Liabilities of Companies - Essay Example

? Assessment criteria Rights and Liabilities of Big Brew, Real Ale companies and Ingrid Normally, companies are held liable for the actions or omissions by its officers or agents. This is because, upon their creation, they are considered artificial persons and separate entities from their owners.1 Since the ownership of the brewing company was transferred from Real Ale to Big Brew, the company bears several rights and liabilities. Because of this, they possess legal rights and obligations similarly to the natural person or a human being2. This case applies to Realale and Big Brew plc following several transactions3, as well as Ingrid who is concerned about the creation of a brewing and beer testing museum next to an alcohol rehabilitation centre. They have a liability over the customers who were taken seriously ill for consuming a test product. Since at this time the company ownership had not been legally completed, it is the real Ale that should take legal responsibility for this action. It is additional to the fact that real ale had been registered to produce ale only. As such, it was a legal mistake when as a director, Grace decided to produce lager and test it using the consumers of the company. The sole object4 of the company was to produce and sell Real ale only and desist from the production and brewing of lager. It can be considered that she, on behalf of the company, acted beyond its capacity by getting involved in an activity other than that which was expressed as the main commercial purpose for which the company was formed. Her action thus acted as a breach of an express term5 that was included in the in the document as an “Article of Association”6 during the formation of the agreement. She, together with Realale, subsequently bear legal liability against the patients involved in the “sick seven” episode since the brewing of larger is in this case deemed to be ultra vires and void. It is because it was done in contrast to what the scope of the company’s objects clause describes. In addition, as a consumer, the affected individuals bear the legal right to purchase products that have been proven to be safe and not likely to cause any harm to their health7. As such, since the supervision was done by Grace on behalf of the company it is legally unethical to produce a test product without consulting the other board members and presenting it to the consumers. In this case, it can be established that she used the company as a mere facade to enhance her interests to surprise her fellow directors. As a director, she is liable to the rest of the shareholders by making the company to act against its objects. Moreover, this action was not valid between the company and the third party who constitute its customers. It is on these grounds that the company can be held liable for the violation of consumer rights. In this case, Realale should be considered liable for negligence by the company and one of its directors should take responsibility for any costs incurred by the company over the void transaction. As partners in the company, Realale lack a limited liability for the liabilities and debts in the firm. Since there was a legally binding agreement between Real Ale and Elena’s father; Harry, during the purchase of the cars, it is the responsibility of its shareholders to ensure that the payment is made as expected. This would ensure that the agreement is converted into an executed and complete contract8. Additionally, the time indicated in the agreement for payment should be appropriately observed. In this sense, Big Brew has a legal right to claim this payment from the assets possessed by Realale. Nonetheless, as was revealed in Lee v Lee Air Farming Ltd the shareholders of a company are not liable for the debts and liabilities of the company9. It is for this reason that the Realale shareholders are not liable to the creditors of the subsequent Big Brew Company. They only owe liability to the company and not to the individual creditors of the company. This is because they are cushioned by the corporate law from the losses made by the company. Nevertheless, in case of liquidation, the shareholders have limited liability to make contributions in order to pay the creditors. However, as a corporation Realale has a distinct legal dependence from that carried by its creators. It, therefore, means that they possess personhood or can be termed as artificial persons. This was evidenced in Salomon v. Salomon & Co10 where it was decided that the company was a separate legal personality and hence its liabilities were distinct and separate from its owners. Realale has a duty to ensure that their powers are conducted for the appropriate purpose. Realale Company no longer possesses an insurable interest over the customers taken in for consumption of toxic substances. As a result, they do not have a right to reimbursement from the insurance company. For this reason, Real Ale should take liability as they failed to renew the insurance cover claims before the exchange of premises ownership would take place. The claim expiry notification was sent earlier enough for insurance renewal and Darius should have thus ensured that the claims cover position was appropriately renewed before the transfer. This is because it had already expired before the company was transferred to Big Brew. Subsequently, he is just a shareholder and cannot insure the customers from harm. It is, therefore, the obligation of Big Brew to ensure that insurance cover claims are renewed. Nonetheless, since the “sick seven “ incidence took place before the transfer of the company, Grace on behalf of Realale is liable and should therefore provide legal compensation for the victims.11 According to the Partnership Act 1890 of the UK, Fasil as one of the partners was also supposed to be listed among the first directors of the company. Because of this omission, Darius, Elena and Grace owe Fasil his required share of the profits kept in the joint account. This is because members are entitled to dividends accrued from company profits. He is thus a creditor of the company and can sue the company for his compensation. Moreover, the Companies Act 200612 requires that Elena should have been given equal contribution opportunity as John and Karim. The resignation of Darius and Grace as company directors meant that, as shareholders, they had chosen the three acts as the board of directors. Particularly, Realale was to be represented by Elena. This providence is offered under the corporate governance area where the three had equal power relations within the Big Brew Corporation. Just like them she was entitled and supposed to be involved as an agent to take care of the management and businesses of the company.13 She, therefore, has a right to sue the company against discrimination and bias hence unequal rights to contribution. The management of Big Brew PLC thus bears the responsibility of coming up with a memorandum of understanding to define and indicate different roles. It is because they should have ensured that there is a balance of power among all the new directors as provided by the §141 (a), Delaware General Corporation Law. This helps to regulate the internal activities of the company in relation to boardroom procedures and entitlement to dividends in case of inconsistency as was decided in Ashbury v. Watson.14Furthermore, under the constitution, the companies Act gives the partners freedom to agree and change the nature of the company business and to arrange how the firm is likely to run.15 Elena has since transferred her shares from Realale to Long Run Ltd. In this case, her partners from both Realale and Big Brew should offer their consent with regard to this step CA 1985, s. 182. In this sense, she has the rights to transfer her shares or exchange them for the same nominal value as her initial contribution as was shown in Trevor v Whitworth.16 The shareholders in Real Ale should have adequately completed the necessary legal formalities before the transfer of the company to Big Brew. Nonetheless, with regards to the lease performed on their behalf by Darius, Realale have not breached the contract between them and Exbrew. This is because although the lease of the disused property by Darius on behalf of Realale Ltd was expected to last for three years, it was precontractual.17 Darius had no authority to perform any activity on behalf of the company before its formation. The lease agreement was made on the 1st of July 2010 before the incorporation of Realale Ltd on the 15th of July 2012. It is after this that it was considered as being legally registered as an industrial enterprise. The company was thus formed under that which is limited by shares. Because of this, the company is not bound by the contract since it lacks a legal capacity hence the lack of payment of rent since December 2012 is not liable to a legal suit. It can thus not be considered damage on the part of Exbrew management since the contract cannot be ratified as the company was non-existent at the time of its formation. As such, they are not liable for suit by ExBrew Company as it is regarded as a pre-incorporation contract. According to the Company Act 1985, there is no legally binding contract at all, and thus the agreement cannot be enforced by either the company or the agent who sealed it on behalf of the company s36C. This decision was made in Newborne v Sensolid (GB) Ltd18 whereby the agent is fully liable for such a contract. The Big Brew company plc had held a meeting and endorsed any and all breaches made by the directors. This step gave the new management overall responsibility over the debts associated with the creditors of the company. As such, the former shareholders are not liable for the previous debts that remained. The same also applies to the shareholders such as Elena who still partly own a piece of the company. According to the law, a company owns its property and the shareholders possess no right to share or own it. The transfer of all assets belonging to Realale to Big Brew requires that one of the shareholders from Realale who would in this case be Elena be involved in the approval of non-cash assets with a certain value. This is because the assets belonging to Realale should continue even without the shareholders of the company. This is not the case as she is not given room to make her contribution. As such, Realale can create a floating charge to provide security over its assets and prevent any delay on their assets. It can also be done by Big Brew to assist them in the easy attainment of funds since it does not focus on any particular assets but floats over all the assets of the company. In addition, Realale has a right to distribution of profits and asset participation due to their nominal value of 10000 per ?1 made during the contribution of shares by its shareholders. There is a possibility that The Big Brew PLC may face bankruptcy charges after the withdrawal of supply terms of agreement services by Longrun Ltd. With this, as speculated by the Limited Liability Act 1855, its shareholders can only be liable for the limited amount that they invested as capital. It thus owes its stakeholders a liability to make crucial decisions with regard to the consideration of solvency in the event that they become bankrupt. However, in this event, the Big Brew Company can transfer some of its shares to other shareholders.19 The company has to prevent its creditors from getting maximum losses in an effort to avoid liability under the Insolvency Act 1986, s. 213 and 214. With this, priority should be granted to all creditors first before the shareholders and employees. Moreover, upon winding up, the company should repay capital to all of the Realale shareholders including Fasil. Ingrid’s Rights and Liabilities On the other hand, a dilemma arises for Ingrid who holds company shares in the Big Brew Company. However, since he also bears personal interest in the rehabilitation center because his son attends it, he has a right to sue the company for acting outside its corporate powers. This is because it can be considered that Big Brew has a legal obligation to enhance the well being of the people living in the community within which it operates.20 As such, he can argue that the benefits offered by the rehabilitation center towards those addicted to alcohol is far more reaching than those expected from the Museum of brewing and public beer tasting. As such, its corporate benefit is not worth the compromise made on the rehabilitation center and will be liable for questioning. As specified by the Limited Liability Partnership Act 2000, the company possesses limited liability for its shareholders who include Ingrid. It is because the Realale possesses all the required documents that include the memorandum of understanding and the article of association.21 Owing to this, the personal liability of each shareholder lies in the amount of shares valued at the corporation. As such, he is liable to pursue any course of violation of human rights to proper and appropriate health care from the rehabilitation center by the corporation.22 In relation to this argument, the company can thus be said to have breached the consumer and the environmental protection laws. This is because the community expects it to uphold an appropriate social environment for its members. Additionally, Ingrid is entitled to the price value he can get for his shares.23 He can only make the legal suit after he transfers the shares he holds in the company making him no longer a shareholder at Big Brew. Subsequently, he cannot enforce any provisions of the company’s constitution.24 Bibliography Ahmad, Tabrez. (2009). Company Law 3rd Lecture Power point presentation. Retrieved 23 March 2013 from http://www.slideshare.net/tabrezahmad/company-law-i-3rd-lecture ppt Ashbury v. Watson (1885) 30 Ch D 376 Catherine Lee v Lee's Air Farming Limited [1960] UKPC 33, [1961] AC 12 (11 October 1960) (on appeal from New Zealand). Companies Act 1985. Delaware General Corporation Law, §141(a). Hannigan, Brenda. (2012). Company law. Oxford, U. K. : Oxford University Press. Insolvency act 1986. Limited Liability Act 1855 Mittal Ankur (1988). Company law lecture notes. Retrieved 23 March 2013 from https://docs.google.com/viewer?a=v&q=cache:lulUUFRX4bUJ:csstudypoint.weebly.com/uploads/4/0/8/8/4088217/14186301-company-law-lecture-notes-of-ankur-mittal.pdf+company+law+lecture+notes&hl=en&gl=ke&pid=bl&srcid=ADGEESi3wDl2BXADfVN4hpD-Q3Flg2CHmVWI-SG2Oqyw210I2BZGhHLa3vi0hvTfOfVVu7bMxBqTIjcGnCxiXz1J_1mpgW1jM7ZUjSvjBmOEJLFcAIsyxrCmkbn22gjwEsCsrATPGT67&sig=AHIEtbTnHFvCCF6Er4SWQllQ0kTqI23fYQ Newborne v Sensolid (Great Britain) Ltd [1954] 1 QB 45 Partnership Act 1890. Phillip I. Blumberg. (1993). The Multinational Challenge to Corporation Law: The Search for a New Corporate Personality. New York, Toronto: Oxford University press. Salomon v. Salomon & co. 1897 a.c. 22 (h.l.) Smith, Douglas. (1999). Company law. New York: Taylor & Francis. Read More