Analysis of Business Law - Case Study Example

FACTS Don, Edwardo and Francesca are the three directors in Toys4U Ltd, a medium sized toy retailer in the London area. On the 4th day of April, they held a Board meeting to discuss the possibility of changing the company name—from “Toys4U Ltd.,” to “Toys4Everyone Ltd.” However, Edwardo stated that he will not countenance the idea. DON AND FRANCESCA’S CASE The directors comprise the “decision making body” of every company which is otherwise called as the “Board of Directors” (“UK Company,” n.d.). Under the Companies Act of 1989, they can be either individuals or corporate entities that are made legally liable for the company’s actions (c.46, p.10, s.155). These directors are duty bound to act always “in the company’s best interests even” if doing so might conflict with “their own personal interests” (“UK Company,” n.d.). This is in fact emphasized in the mentioned act—declaring that, “a director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole” (c.46, p. 10: c.2, s.172). As such, to avoid possible conflicts to arise between them especially when taking major decisions, meetings are organized annually or depending on the urgency of the matters to be discussed. Accordingly, even minor topics like changing the company’s name can also be a point for dialogue and hence be the subject of a Board meeting. This is the case presented at hand. Change of Company’s Name A company can choose whatever name it shall be called as a corporate entity as long as in the opinion of the Secretary of State it is not offensive and if use, it would not constitute an offence (Companies Act of 2006, c.46, p.5, s.53). In case a company would want to change its former name, Companies Act of 2006—implemented on October 1, 2009 contains the procedural guidelines. Specifically, s.77 (1) of the mentioned act provides that, “a company may change its name by a special resolution or by other means provided for by the company’s articles.” This means that a company now can actually make its own procedure in changing its name as long as it is couched in its articles and is not violative or contradictory with the other parts of the act. Moreover, a company’s name may also be changed under the same act by “(a) resolution of the directors acting under section 64”; “(b) on the determination of a new name by a company names adjudicator under section 73”; “(c) on the determination of a new name by the court under section 74”; and “(d) under section 1033” (c.46, p.5: c.5, s.77; 2). Nevertheless, the said act did not clearly laid out the legitimate reasons as to when a company is allowed to change its name voluntarily—the substantial basis per se. There are two types of name change as implied in the law itself, mandatory or required and discretionary or permissive. The former is mandated by the Secretary of State as provided in chapter 46 of the act while the latter is not specifically provided—denoting that a company is allowed to change its name anytime as long it is based on legitimate grounds—which is absent in the cited act. The compulsory instances for a company to change name are found in chapter 46, part 5: chapter 3, sections 67 until 70 of the act. Nonetheless, Marcia Yudkin (2009), the “founder of the naming firm Named At Last” gave the possible reasons for a voluntary change of company’s name, (1) “legal challenges such as an accusation of trademark infringement” (2) “updating something that sounds old-fashioned” (3) “fitting a broadened scope of services or wares” and (4) negative market feedback. Available Remedies for Don and Francesca In the above cited case, even though Edwardo has stated that he will not countenance the idea on changing the company’s name, the two other company directors are not left without recourse. Again, as provided in the Companies Act of 2006, a company may change its name through a special resolution or by other means provided for by the company’s articles (c.46, p.5: c.5, s.77; 1). Assuming arguendo that the company has not provided other means for changing the company’s name in its articles then, the first legal option shall apply. Plausibly, under the act, to accomplish the first option of changing the company’s name, a special written resolution is required. This can be done if passed by a majority of not less than 75% of the company members who are entitled to vote in a general meeting (c.46, p.13: c.1, s.283). Thus, for such resolution to be passed Don and Francesca are advised to hold a general meeting— “the directors of a company may call a general meeting of the company” (Companies Act of 2006, c.46, p.13: c.3, s.302). Also, they should gather 75% of the members entitled to vote and follow the rules regarding on posting of notices with regard to the proposed resolution or simply follow the procedural rules laid down in Companies Act of 2006. Legal Obstacles Consequently, if the resolution is successfully passed and approved by the registrar, then later on be considered as the new name for the company, Edwardo is not left without remedy too. He may allege that the change is not done in accordance with the provision of the act as well as with the articles of the company—thus invalid and void. “A resolution of the members of a company is validly passed at a general meeting if a notice of the meeting and of the resolution is given and that the meeting is held and conducted in accordance with the chapter 4 of the act and the company’s articles” (Companies Act of 2006, c.46, p.13: c.3, s.301). He may also point out that the resolution should have been “moved out as a written resolution in the general meeting for being ineffective if passed whether by reason of inconsistency with any enactment or the company’s constitution” (Companies Act of 2006, c.46, p.13: c.3, s.292). Or in other instance, Edwardo may claim that he did not receive a notice of a general meeting which is required under Chapter 46, part 13: chapter 3, section 310(1) of the act—stating that, “a notice of a general meeting of a company must be sent to every member of the company and every director.” In other words, the available arguments for Edwardo are found in parts 13 and 14 of chapter 46 (Companies Act of 2006). References Companies Act of 2006. Retrieved online 30 April 2010 from http://www.opsi.gov.uk /acts/acts2006/ukpga_20060046_en_1 Yudkin, M. (2009). Changing your company name: The good, the bad and the unnecessary. Retrieved online 30 April 2010 from http://www.saintrochtree.com/index.php/homeworking/marketing-general/ changing-your-company-name-the-good-the-bad-and-the-unnecessary.html “UK Company Formation - Law Guide (England, Wales & Scotland).” Retrieved online 30 April 2010 from http://www.startingmybusiness.biz/company-formation/ew-company-law-guide.html Read More