Eleanor's Shareholds in the Comany - Assignment Example

 2. S.174 highlights the director's duty of care RE:Marquis of Bute’s Case-the director failed to attend one board meeting in 38yrswas exonerated on the basis that failing to attend meeting doesn't commensurate to negligence In Dovey, Vs Cory could not be held liable for failing to verify the falsification of company accounts that the manager had given him. 3. Eleanor, the director of the Lilac l.t.d, failed to disclose the particulars involving the sale of land, this tantamount to insider trading. Eleanor acted knowingly about the contract that is contrary to the company’s law. In the decision reached in pervicial vs. Wright states that the directors stand in a fiduciary relationship to the company, and they owe fiduciary duties to the company and not individual shareholders. Therefore the director (Eleanor) acted unprofessionally and had to declare his interest in the meeting. Therefore, the three members can sue Eleanor on the ground that he performed an insider trading, and there was a conflict of interests S .175. 4 s.172 outlines the duty of directors and how they owe the company in the promotion of the company. Director’s duty regarding the company is based on: Duty of care and exercise skill and the fiduciary relationship between the directors. a) duty of care and skill: b) fiduciary relationship The director owes a fiduciary relationship to the company; the director has to exercise the duty of care in discharging his/her duty. In Re Smith and Fawcett Ltd it was held that the directors were required to act “bona fide in that they consider – not what a court may consider – is in the interests of the company, and not for any collateral purpose. the director owes a duty of care as stated in RE:city equitable fire insurance company where it was held that i. A director needs not to exhibit in the performance of his duties a greater skill than may be reasonably expected from a person of knowledge and experience. ii. A director is not bound to give continuous attention to the affairs of the company. In RE: Marquis of Bute Case where a director who failed to attend a board meeting once in 38yrs was exonerated from being negligence. However, the company is free to impose a duty on directors to attend board meetings iii.The directors may delegate work to some official whose past record may not cast doubts and distrust may be exonerated on negligence on the ground that he exercises due care.this is illustrated in Dovey vs. Cory where it was held that the director was not liable for negligence as he had failed to verify company accounts. It, therefore, implies that the directors can promote the success of the company when he owes the duty of care avoiding negligence. However, the employee’s mistake cannot be bound to be that of directors provided he showed that he acted in good faith. 5. An accountant is a person who prepares the financial statement of a company in line with the IFRS.the quality of information should enable the users of accounts to make accurate and transparent judgments regarding the company’s financial statement. The reports or the books of accounts, for example, the balance sheet and income statement laid in, show the true and fair view of the company at a given period of time. Therefore, on a company’s board of director needs to have an accountant so that he can communicate the economic information to the non-accountant directors for decision-making. Secondly, accountant is able to verify whether the report given is in conformity to the GAAP and the corresponding IFRS.an accountant in the board will provide adequate information based on the performance of the company historically and currently,this will enable directors to make critical decisions. SECTION C- 6. in salmon vs. salmon: A parent company and a subsidiary company are distinct legal entities and in the absence of agency contract between them one cannot say that he is an agent of the other.A company has a separate legal personality different from the owners .in this case the building owned by Sabra properties the different business are separate. In this scenario, the subsidiary and the holding are two separate legal entity. There is an aspect of veil incorporation in which sabra properties had contravened and should be lifted. The exception to this rule is that sabra company cannot claim for compensation since he is a different entity.in this case a veil of incorporation has to be lifted to investigate the affairs of the company when sabra can prove. 7. The question discusses how the minority were protected and the extent to which the protection has extended to a greater extent more than they were entitled to. Minority indeed requires protection against unfair prejudicial practices by the majority.the majority shareholders may take advantage of their numbers to make decisions, not in line with the company’s article. The majority rule prevails as enunciated in the case of foss vs. habottle. In this case, it states that in order to redress a wrong done to a property of a company, the proper claimant is the company itself and the court cannot tolerate an action brought by the shareholders on company’s behalf. In foss v Harbottle, two minority shareholders sued the directors for allegedly buying their own land for company’s use and inflating the value. The minority decided to take action, but the majority stated that they were not responsible for company’s loss. It was held that the act of the company had to confirm to the majority rule. The principle of the rule imposed some rules that made the minority be treated unfairly. However, the court lucidly stated that there was the exception to the rule of foss v Harbottle(1843). i) An illegal /ultra vires act It is an exception in that simple majority cannot ratify an illegal act otherwise the minority shareholder may restrain the operation. Therefore, majority rule will be restricted. ii) Acts supported by insufficient majority(3/4) There is some law requiring the three-quarter majority rule where this is not met one shareholder can constrain the judgments of the meeting( Edwards v Heli Wel) iii) Fraud of minority Majority shareholder may pass resolutions that are aimed to fraud the minority. Only One shareholder is enough to reject the resolution. However, this has been too much since majority rule has to prevail because of the following i) Prevention of multiplicity of the suit. ii) The company is a legal person iii) The court order may be ineffective iv) The majority rule In conclusion, companies have to draw a thin line between majority and minority shareholders to prevent conflicts. 8. The articles of association expressly state the rights of shareholders unless the company’s article provide otherwise. The amendment doesn’t affect any rights and obligation that may render defective any legal proceeding against it. The change in the shareholders right must be included in the articles of association otherwise ultra vires.ultra vire contract is void. 9. Saira and Rachel are promoters of a company to be formed called chill l.t.d.saira fails to pay the fee for the registration of the company. They further go ahead by initiating a contract with the uptown caterers before completion of the company registration. In this case, the agreement was that they were to pay$1000 per month. It is a pre-incorporation contract. a pre-incorporation contract and whether it is a contract. The pre-incorporation contract is the agreement reached before a company becomes into existence. The company legally came into existence on 26th of March. In the case of In Twycross vs. grant .a promoter is not an agent of a non-existent principal. In Erlanger vs. sombrero phosphate company where they acted in a fiduciary is positioning their hands the creation of a company. In Kellner vs. baxter,it can’t contract or have agents and has no legal existence. In Kelner vs. Baxter a person who contracts with an agent but who at the time there existed no principle would be inoperative unless done by the person signing it. Therefore, a company cannot ratify a pre-incorporation contract. The agreement between chill l.t.d and suppliers cannot be ratified. 10. Limited liability Limited liability referway to which a person may be called upon to contribute to the assets of the company in the event of winding up.a public limited company enjoys a wide variety of advantages in that in the event of winding up the assets of the company can be used to offset the debts. However, the burden is in the case of formation, it requires a cumbersome procedure in its operation alongside slower decision making unlike partnership business. All limited company are required to present the balance sheet and the income statement at the end of a given financial year unlike the case in private companies. The company must issue a prospectus when issuing the shares as part of their requirement .this si, not the case particularly to the private company. Moreover, a limited company cannot start trading without having a certificate of incorporation. The cumbersome and complicated procedure in a limited company proves to be a burden 11. Transfer of shares A share is a unit of capital in the company. It is a transferable property, but to obtain the transfer of the legal ownership, two conditions to met. i) A proper instrument of transfer has to be delivered to the company, which may not enter the transfer in its register until it's completed. ii) The article gives the directors powers to refuse to register a transfer. The transfer has to be authorized by the article. The transfer procedure In RE Greene(63) a proper instrument of transfer enforces the payment of stamp duty at ad valor em rate or on the nominal value of shares transferred.thus, a company may reject unstamped transfer under stamp duty act. However, the rule doesn't apply for the registration of shares in the personal representatives or trustees in bankruptcy. Therefore, a member cannot arrange for the direct transfer of his share to a beneficiary after his death without a proper transfer. The primary transfer involves both the transferor and the transferee filling in a transfer form and signs the transfer form before delivering to the company for registration.the transferee becomes the legal owner of the shares only when his name is entered in the register of members the company issued to the transferee in a new share certificate and cancels the old one. Certification of transfer In Longman vs. Bath Electric team was, A transfer of shares to B was registered and a certificate prepared to his name,before the certificate was issued B signed a transfer of shares to H and this transfer was sent to the company for certification.the company certified the transfer and returned the certified transfer to B. IN error the company then sent to B the share certificate in his name.B deposited the share certificate with L as a security for loan.L later claimed that he was entitled to the shares. Held: It was held that L claims must fail since he had not seen the certified transfer to H and a mere possession of B’s share certificate gave him no claim against the company since the certificate issued correctly described Bas still the registered holder of the share. In this case, L had been able to secure registration as a holder of the share and the company had rejected the transfer to H.H could claim compensation from the company since a certified transfer have been a representation of the company that it held B’s certificate and that the transfer to H was valid. Prohibited or restriction of names s.18 of the registration of business names act provides that the the registration of the company’s business name shall not be construed as authorizing the use of business name under the act shall not be construed as authorizing to the use of business name apart from its registration.the use thereof could be prohibited. A company may change the name either voluntary or compulsory change, Ins.20(1) a company shall change if a special resolution has been passed by the company after obtaining a written approval from the registrar. The company may change the name compulsorily when it is similar to the existing one. The following are the prohibition on the change of names in a company. i)the names which contain any word that the opinion of the registrar is misleading the public. ii)includes any words such as imperial,’’royal’,crown,’’empire’’,governments or other words that suggest that the business enjoys the queen patronage of any member of the royal family. iii)it includes the word cooperative or its equivalent in any other language or any abbreviation thereof iv)It is identical or similar to that of the existing or already registered under company’s act. v)it is misleading vi) it includes imperial.The building society,bank,bankers investment trust,trust unless the circumstance justifies its inclusion vii) it includes surname that is not that of a proposed director unless the situation justifies its inclusion viii) Includes words that might be trademarksunless trade mark clearance has been obtained. Maintenance of capital The issued share capital of a company limited by shares is the primary security of creditors. In RE: exchange Banking company.M.R stated that a limited company by its memorandum of association declares that its capital is to be applied for the business purpose.it cannot reduce its capital except under statutory provisions. The reason for maintaining capital si for business purpose and the contract between company and creditors. There is provision put in place to ensure that the intended capital: i) Is not watered down as it comes into the company ii) Doesn’t go out of the company once it is received. Provision preventing capital from being watered down a) Issuing shares at a discount It is illegal for a limited company to issue its shares at a discount (in the ooregum gold mining company of India vs.rope). the nominal value of a share is fixed by memorandum ,hence,the company cannot issue shares at a discount. However, the act permits issuing of shares at a discount when i) Shares are of class already issued ii) Issue authorized by special resolution iii) Resolution specifies maximum rate of discount iv)Not less than a year has elapsed since the company commences. v)The issue is sanctioned by the court. b) Payment of underwriting s.55 of company’s act allows payment of commission when i) Authorized by the company’s article ii) the commission paid doesn't exceed ten percent of the share issued. iii)The rate of commission paid is disclosed in the prospectus. Provisions that prevents capital from going out In Trevor vs. Whitworth, lord Watson acknowledges that no legislation can prevent a company’s capital from being lost or diminished in the course of the business. There are provisions that ensures that no part of the paid up capital is paid out by the company except in the course of the business. i) Issue at a premium A company issues shares above the nominal value.s.58 provides that a company issuing shares at a premium the cash or consideration on the sale of shares will be transferred to a share premium account. The share premium account is used to pay up unissued shares and to write off preliminary expenses References Davies, P. L. (2010). Introduction to company law. Oxford: Oxford University Press. Dignam, A. J., Goo, S. H., & Hicks, A. (2011). Hicks & Goo's cases and materials on company law. Oxford: Oxford University Press. Hannigan, B. (2012). Company law Hirani, M. H. (1997). The company law related to social responsibility of company directors. New Delhi: A.P.H. Pub. Corp. Pettet, B. (2005). Company law. Harlow: Pearson Longman. Sime, S., Taylor, M., & City Law School (London, England). (2014). Company law in practice. Shukla, M. C., & Instituto Dominicana de Investigaciones Antropológicas. (1962).Company law. Delhi: S. Chand. Sealy, L. S., & Worthington, S. (2008). Cases and materials in company law. Oxford: Oxford University Press. Smith, D. (1999). Company law. Oxford: Butterworth/Heinemann Read More