The Business That James and Matthew Run - Math Problem Example

Corporation Law Customer Inserts His/Her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 10th September, 2012 Question 1 When we examine the business that James and Matthew run, we recognize that their business is a partnership. Their intention to run a company between them and their cousin as shareholders is a wise move. The legal issue of the benefits of a company are contained in the Corporations act and ASIC. In this case we look at the customer who wants to sue them or the employee who wants to sue the pottery company for damages. These are some of the legal issues that we need to look into. However, according to Part 1.5 of the Corporations Act, a company that has been registered in Australia under the Corporations Act has some legal rights and obligations. A company is considered a legal separate entity meaning it can sue or be sued, own and sell assets of property and it can also enter into contracts1. As a result, the company is liable to damages and any other losses incurred in running the business. Due to limited liability, the losses cannot extend to the owners of the company. However, in some instances it is disadvantageous to run a company due to stringent legal requirements. A shareholder is not liable to the company’s debts. In our case though, James and Matthew might end up being directors and they are liable to performance of their duties to the company. Annual financial reporting is a must for companies and other meeting the several legal requirements is costly. Question 2 a) In this case we take a look at company shareholders who also act as directors of a company. We need to examine the roles and rights of directors in the case of Steve Gates, Mark, Bill and John. Steve, Mark and Bill also act as employees of the company. Moreover, the company’s constitution does not allow for removal of directors through a resolution of the directors. Therefore, Steve cannot be removed from office through use of this s203C of the Corporations Act. As a result, we have to look into other ways in which Steve can be removed from his position in the company. As a result, we could make use of section 206B of the Corporations Act. Steve could make use of this section and argue that the other directors cannot remove him from office unless he is found guilty of serious breaches of the Corporations Act2. Section 206 D covering on insolvency and section 206E on the issue of repeated contraventions of the Corporations Act. In our case, Steve did not break any law or contravene any law and moreover, unless Mark and Bill prove that these individuals broke the law then it would be impossible to remove Steve from his position in the company. This was witnessed in the case of Sheahan v Verco, whereby the defendant won based on his conduct as a company director. In arguing his case out, Steve could make use of the provision that directors need to act in good faith as provided for in section 181 of the Act3. Moreover, he could argue that indeed he acted in good faith and had all the good intentions for the company. b) The scenario that is presented here is that Bill being the managing director of the company, he has the duty to take care of the interests of the company. The same duty of care applies to Mark as the marketing director of the company4. As a result, an issue of the acquisition of the shares held by Mark as come up. As a result, since Mark is a shareholder, he may decide to act on the issue by making use of section 254E of the Corporations Act. This section gives Mark the right to validate the issue since he is an affected party in this case. Using this clause, ASIC might grant an injunction to the sale of the Mark’s shares. Moreover, Mark could argue that in the process of reducing his shareholding in the company, the other directors should bear in mind the provisions of 256C (2), which require the approval of shareholders. Consequently, the beneficiaries of the reductions must not vote in this resolution. Therefore, it is only John who can decide if Mark shares can be reduced since he is not a beneficiary of this reduction. On the other hand, ASIC has to be notified of share transfers under laid down legal procedures. In the other issue concerning change of constitution, a special resolution has to be passed at a general meeting5. This resolution has to be unanimous and therefore, Mark has the right stay as the marketing director until all the other three directors, vote for company constitution change. Therefore, Mark has the right to remain in office since according to him, he exercised duty of care. Question 3 Cyril’s position as the company secretary gives him the right to call annual general meetings based on the provisions of the Corporations Act. In this scenario, Cyril followed the provisions of section 249H of the Corporations Act which requires a notice of 28 days for public listed companies. In this case, we witness that the time in which the meeting was called was within the at least 28 days that the Act requires. This section is limited to the fact that it must be followed to the latter even if the company’s constitutions states otherwise. In this case, had Cyril violated the Corporations Act and then the resolutions reached at the meeting would have been null and void. Since the meeting was carried out in appropriate time then Cyril did not breach any law in calling the meeting. Other provisions that were to be looked at include that an AGM must be held at least once a year. The calling of an AGM has to be also done within a period not more than five months after end of the financial year. Since all these requirements were met then it is agreed that Cyril followed the provisions of the Corporations Act to the latter. In most cases, it the directors of the companies that have the right to call AGM but this duty can be delegated by the directors. In most cases, it is the company’s secretary who calls for meetings based on the resolutions reached under the previous meeting. Question 4 In this case, we witness Darren who is the managing director of SmartPhone limited has been misusing his position in the company. The actions of Darren were not done in good faith and this has contributed to poor performance of the company. Based on section 256 C (2) of the Corporations Act, a share capital increase that will affect the shareholding structure of a company must be performed legally. In this case, since the increase of new shares will affect Christopher and Kate, they must be aware. Moreover, Darren has not right to vote in this resolution since he is also an employee and this will affect the company. In the process of issuing out new shares the rule of pre-exemption must be followed. In this case Christopher and Kate have to be given the pre-existing right to apply for the new additional shares before any other shareholders or outsiders are allowed. Moreover, since Christopher and Kate are the majority shareholders, they also have the right to make decisions on issuing of new shares. The actions of Darren in this case breached the provision of good faith contained in section 181 of the Corporations Act. Making use of this section, Christopher and Kate could argue that Darren did not act in good faith since his actions were not for the best interests of the company. Moreover, he acted in manner that was meant to undermine the rights and powers of other shareholders. This amounts to breach of section 181 of the Corporations Act and civil action must be taken against Darren. Darren is fully aware that by making a resolution on the share capitalization will affect the company considerably. Hence, he has not made use of the business rule judgement that requires a director not to make a decision that will materially affect him. In this case, there is a conflict of interest in relation to the conduct of Darren in managing this company. As a result, strict civil penalty should be applied to him in the quest of undertaking his duties6. The other legal issue that we need to look at is the fact that Darren and his associates own the least percentage in the company. Therefore, their decision to increase shareholding of other employees was done not in good faith and therefore it will not amount to detriment to the company. This is violation of section 182 of the Corporations Act whereby employees and directors are supposed to their positions to gain an advantage for themselves or someone else7. The actions of Darren amounted to breach of duty and civil proceedings should be taken against him in a court of law. Moreover, Michelle as the company secretary also breached the Corporations act section 205B. This is because she did not inform ASIC of the notice to undertake certain duties. In this case, the actions of Darren as the managing director amounting to breach of the Corporations Act provisions8. Section 137E of the Corporations Act could be used in applying civil penalties against the Darren and his associates. Works Cited Cassidy, J. 2006, Concise Corporations Law, Melbourne: Pearson Education. Duncan, W., 2005, Joint Ventures Law in Australia, Chicago, IL: John Wiley and Sons. Lewis, R., 2006, Australian Corporations & Securities Legislation 2011: Corporations Act 2001, ASIC Act 2001, related regulations, Sydney: Routledge. Lipton, P., Herzberg, A. and Welsh, M., 2012, Understanding Company Law, London: Thomson Reuters. Read More