Brainy Pty Ltd - Company Law - Assignment Example

mраny Law Аssignmеnt Name Institution Question One Issues: Brainy Pty Ltd is a company manufacturing computer DVD drives. The directors in the company are; Ursula the Chairman, Sam the Managing Director and Bob a non-executive director and holds 75% of the shares. Morris who is just a small shareholder realises that the share market of the company is declining because of consumers’ application of internet in downloading data. The three directors are the owners of USB Pty Ltd, which dominated the USB port market, thus rejecting the proposal of Morris of Brainy Pty Ltd to manufacture USB ports. Morris knows that Brainy Pty Ltd customers are sent to USB Pty Ltd when they ask about USB components. Rules: According to the company law, shareholders have a right to raise an alarm when a company is losing its share market1. Despite the number of shares owned by a shareholder, one has the rights to ensure that the company is in the right business track. The three directors; Ursula, Sam, and Bob have conflict of interest. The directors own a business, which make them to stand against manufacturing of USB port by Brainy Pty Ltd to avoid competition Jackson v Dear and Anr [2012] EWHC 2060 (Ch). The law allows any person especially the shareholders of a company to take an action towards the directors when they breach their duty as directors. Morris should take an action and raise his suggestion of manufacturing of USB ports to the members to hear their opinion2. Application: The plaintiff (Morris) needs to be let free by the constitution and be allowed to continue owning shares in the company despite the formation of a constitution. The directors should be allowed to provide their opinion as to why they are against the company’s manufacturing of the USB ports. Morris will have to establish failure of the directors in leading the company to the right direction leading to lose of the share market. Conclusions The directors of Brainy Pty Ltd can create a constitution because the company needs a constitution to guide its operations. However, the constitution should not allow the directors to take Morris’ shares or ask him to sell his shares to the three directors Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919). Since the directors are not the only shareholder of the company, there should be shareholders’ meeting and conduct an election towards Morris’ suggestion to identify the winning side3. Question Two Issues: Rebecca is a legal owner of some fully paid shares and other partly paid shares in Narrow Pty Ltd. Similarly, she has a similar shareholding in Wide Ltd (a non-listed company). The two companies do not have a constitution so nothing that Rebecca can present to the court. Rebecca considers selling all her shares from the two companies to Jess with submission of the necessary documentation from the two companies. The directors of Narrow Pty Ltd advice Rebecca from that she is not permitted to transfer the fully paid shares to Jess, but she is permitted to transfer the partly paid shares. Rebecca transferred the partly paid shares to Jess On the other hand, the directors of Wide Ltd advise Rebecca that they cannot allow the transfer of both the fully paid shares and partly paid shares. The directors have rights of allow or rejecting transfer of shares in the companies. However, the shareholders have the rights to transfer their shares. Rules: According to the Company Act, shareholders have right and capacity to transfer their shares to the existing shareholders or even a third party. On the other hand, the law allows the directors’ right of refusing the transfer of shares in a private limited company, but under reasons Jackson & Steeple Ltd., [1974] 1 W.L.R. 1133,. 1144 (Ch). The reasons for refusing to transfer the shares should be in the best interest to the entire company and should not be conducted to oppress the shareholder’s rights. It is evident that the conduct of the directors of both companies was not fair and the directors from both companies acted incorrectly towards Rebecca’s interest of transferring her shares to Jess. The Corporations Act 2001 requires the directors of companies to be guided by companies’ constitutions in their roles and responsibilities Jackson v Dear and Anr [2012] EWHC 2060 (Ch). The two companies do not have any article restricting the right of the shareholders to transfer their shares; hence, not efficient for directors to restrict Rebecca’s transfer4. This means that the directors do not have a documented article referring to when restricting Rebecca from transferring her shares to Jess. If there companies had a constitution with such an article, the directors could have managed to block all Rebecca’s transfers Benchmark Building Supplies Ltd v Jackson (2001) 9 NZCLC 262,612. The similar powers used by the directors at Narrow Pty Ltd to allow Rebecca transfer her partly paid shares should be the same powers followed to allow her transfer the fully paid shares. The company law identifies the procedures and methods to be followed when transferring shares5. Directors’ duty during transfer of shares is to ensure that the transfer is conducted with good reasons and legally Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919). The Company’s Act 2006; 28, 7 emphasise that the directors have a general duty of ensuring that transfer of shares is efficient. Application: Rebecca (the plaintiff) should provide a clear evidence of the two companies not having constitution with articles that prevent transfer of shareholders’ shares6. Rebecca should also present good reason why she is transferring her shares to Jess and not retaining any amount of shares with the companies. The directors from the two companies should establish the constitutions with clauses for refusal and acceptance of transfer of shares by the shareholders to ensure that such incidences are not repeated in the two companies Jackson & Steeple Ltd., [1974] 1 W.L.R. 1133,. 1144 (Ch). The case applies to cases where direct exercise their powers badly and hinder the shareholders from exercising their powers as they are supposed to. It is necessary for Rebecca to present a reasonable evidence of failure of the directors to play their duties and responsibilities to the company shareholders accordingly. Conclusions The conduct of directors from the two companies of refusing the transfer of Rebecca’s shares was not ethical or fair7. Shareholders have rights to transfer their sharer to a third party or an existing shareholder in the company. Rebecca should sue the two companies’ directors for the refusal of transfer of her shares to Jess Benchmark Building Supplies Ltd v Jackson (2001) 9 NZCLC 262,612. The directors from the two companies should allow Rebecca to transfer her shares since the two companies do not have any constitution or documented clause against the transfer of company shares. Rebecca’s interest of transferring her shares to Jess should be considered since she has all the necessary documents against her shares in the two companies Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919). The conduct of the directors of both companies was not the necessary one because they were not guided by the company’s constitution. If the directors made their stand with a good reason and not oppress Rebecca, it would concluded that their refusal was the right one and with the best interest for the company. Question Three (a) Larry role of registering a new company undertakes taking a legal documentation towards the company, as the company’s promoter. Larry is supposed to come up with the new company name, conduct the company name reservation or approval and pay the registration fee. There should also be registration of the company name through the legal and necessary registry body. Larry owes the duties of ensuring that the company is legally registered under an approved name before it is commenced8. The roles of ensuring legal registration of a company are owed to the company members and shareholders. (b) Failure of ratification of Larry’s lease by the director would lead to no purchase of the educational equipment proposed by Larry. Larry would feel being disappointed because of the directors failing to give consent to the purchase agreement since in the first meeting, it was considered9. Larry as the managing director of the company might fail to deliver to the new company by not playing the director’s roles and responsibilities in good faith. The relationship between Larry and other directors would also be influenced since he is the one worked towards registration of the company. (c) The appropriate and available sources of funds to Lifesaver’s Ltd would be; members or owners’ contributions. This situation is where the company’s shareholders contribute towards the company’s funds according to the way they hold shares to the company. The company can get funds from the general public through issuing of securities with consideration that no fundraising meetings are held since it is limited under the Corporation Act10. The company can also get a certain percentage of the required fund through the educational equipment lenders and this should be conducted under agreement signed by both parties. (d) If the company was “Lifesaver Ltd”, it would have other additional sources of fund, such as; looking for the government guaranteed loan guaranteed by the small business administration (SBA). The company would borrow from the families and friends where it would get funds without being charged interest against loan11. Funds can be sources from small loan from the bank in the name of business loan secured by the company or personal assets. The company can get funds from finance companies, and the offices of the economic development, venture capitalists, grants from non-profit companies, and angels. Bibliography Books and journals Act, Corporations. "Commonwealth of Australia Consolidated Acts." (2001). Bevan, Christopher J. Corporations law. Lawbook Company, 2011. Lipton, Herzberg and Welsh, Understanding Company Law, 17th Edition – Thomson Law Book Co, 2014 ISBN 9780455232164 Legislations Australian Corporations & Securities Legislation, 2015 edition, Vol 1, ISBN 9781922215673 by CCH Australian Corporations & Securities Legislation, 2014 edition, Vol 1, ISBN 9781922215673 by CCH Cases Benchmark Building Supplies Ltd v Jackson (2001) 9 NZCLC 262,612. Dodge v. Ford Motor Company, 170 NW 668 (Mich 1919) Jackson & Steeple Ltd., [1974] 1 W.L.R. 1133,. 1144 (Ch) Jackson v Dear and Anr [2012] EWHC 2060 (Ch) Read More