Shareholders and Directors of Law Company - Essay Example

Order 156623. SHAREHOLDERS AND DIRECTORS INTRODUCTION The directors of a company are entitled to exercise all powers and to do all such duties and things as the company is authorized to exercise or do, except those that are required by the companies Act or done by the company in a General meeting. In enjoying their powers and duties the Directors are subject to their provision of the Act and any regulations made by the company in General meeting. The board of directors of a company are entitles to exercise all such powers and do all such acts and things as the company is authorized to exercise and do. In exercising their powers, the directors should exercise such powers as per powers as per the Articles of the company. In exercising such powers, the director is responsible to supervise and control the work of the company. Q1 In reference to the case given where J, M, D and S are equal shareholders; they all have equal responsibility to be in charge of the company. If S has began to take less active part in the management of the company, she can be paid less than the agreed amount. However, this should be done according to the laid down procedure. In her present state, she is entitled to be paid the agreed amount of money that is 30,000 Pounds. Paying her 10,000 is unjustified because in order to effect this, the directors must pass a special resolution requiring that: - (a) The interim to propose the resolution as a special resolution has been duly specified in the notice calling the general meeting or other intimation given to the members of the resolution. (b) The notice required under the companies Act has been has been duly given of the general meeting. (c) Votes cast in favour of the resolution by members present times the numbers present in person or proxy are not less than three times the number of the votes, if any, cast against the resolution. Thus, it is clear that a special resolution is one, which is passed at a general meeting of a company by a majority of 75% of members present and entitled to vote. Therefore S can take steps to insist that she be paid the old rate of 30,000 Pounds and not 10,000 Pounds To this effect S make the following points clear to the other directors: - (1) In absence of any express words in the articles requiring that a director who takes a less active role in the company shall be entitled a salary three times less of his / her monthly, she is entitled for the whole pay of 30,000 pounds. (2) In absence of any special resolution, which is passed at a general meeting o a company by a majority of 75% of members present and entitled to vote, the directive of the directors to the payroll staff to pay S 10,000 pounds is unjustified. In this case S can challenge the decision of the directors in a court of law if they adamantly refuse to pay her 30,000 pounds, which she is entitled to be paid till the meeting is convened, and resolution passed to this effect. Q2 Yes; if they first pass a resolution that clause 10 is to be altered, it would change the answer in question (1) above. Secondly S could not change this. In this regard the articles must be altered according to the procedure laid down as follows:- First of all, the proposal has to be approved by the directions who make-up the board. The board shall decide the date and time of the general meeting and secretary will be authorized to convene the meeting. The directors will also approve the draft of notice, special resolution and explanatory statement. Secondly, the special resolution should be passed in the general meeting held on the appointed date. Thirdly, within thirty days of the passing of the resolution the company has to file a certified copy of the resolution. After the approval, the company should file printed copies of the articles with the registrar of companies within one month of the date of the receipt of approval. The company Act provides that, subject to the provisions of the Act and to the conditions contained in this memorandum a company may by special resolution alter its Articles. However the only restriction on this unfettered power granted under the Act is that a public company cannot convert itself into private company by carrying out alternation in its Articles of Association. The right to alter the articles being unfettered the company cannot in any manner either by express provisions in the Articles or Memorandum or by independent contract deprive itself of the power to alter its articles (Walker v. London Tramway Co. (1979) 12 CH. D. 705) However the alteration should have been made bonafide for the benefit of the company as a whole, and the power to alter must have been exceeded. Thus in Allen V. Gold Reef West Africa Limited (1900) 1 Ch. 657), the Articles of the company gave the company lien over all "not fully paid" shares for calls due to company. 'A' was the only shareholder who held fully paid shares; he also owed money to the company for calls due on other shares. 'A' died. The company altered its articles by striking out the world "not fully paid up" and thus gave itself the power to exercise lien on all of A's shares. The court held that alteration was valid as it was bonafide made for the benefit of the company. The articles must be altered in good faith and not so as give unfair advantage to majority of shareholders (Neal v. City of Birmingham Tramways, (1901) 2 ch. D. 464. However the absolute power of the company to alter its articles is subject to two restrictions: - (1) It must not contravene any of the provisions of the companies Act should not be an attempt to do something, which the Act forbids. For instance in Madhav R. V. Canara Banking corporation Limited (AIR 1941 Mad 354), the company altered its articles by a special resolution for expulsion of a member and authorising the directors to register the transfer of his shares without a transfer deed. The alteration was struck down by the court being contrary to the provisions of the company law. (2) The company's power to alter the articles is subject to the conditions in the conditions in the memorandum. If any alteration in the articles is contrary to the provisions contained in the memorandum or inconsistent therewith, it shall be void being ultra vires the memorandum (Swami Nathan M. V. Chairman, 1998 Writ LR 41 (Mad). After an alteration in the articles is made, it should be endorsed in every copy of the documented subsequently issued after the date of alteration. Failure to comply with this provision will render the company and this provision will render the company and its every defaulting officer liable to punishment with a fine. Therefore after adhering to all requirements to alter the articles as explained above and after passing a special resolution passed by a majority of 75% members present and voting. Q3. In any case S's presence or absence will change nothing. Therefore she cannot object to the change of the Articles, as long as the meeting was properly convened and there was a quorum. This is the minimum number of members required to constitute a valid meeting and to transact business. However if no quorum is present, there is no meeting and proceedings are invalid. Quorum for a company meeting is to be fixed by the articles of association. The Company Act provides that unless the articles provide for larger number, two members shall be the quorum for a meeting of a company. Thus articles cannot provide for a smaller quorum than what has been prescribed under the company act. For this purpose of quorum, only members present in person and not by proxy are evaluated. It should be noted that a company present through its representatives is treated as a member present in person and is counted in the quorum. S being evicted after she protested loudly does not give her a right to object as long as the remaining shareholders make a quorum her absence from the room does not make the meeting to lack quorum. The quorum of private companies is at least 2 shareholders. In Re London flats limited (1969) 2 All ER 744, where out of the two members attending the meeting, one left the meeting due to some differences on a resolution regarding appointed of a liquidator, the proceedings of the meeting were held viable to be valid. In this case S cannot challenge the validity of the meeting to pass the resolution or object the passing of such resolutions. Her presence and absence does not make a difference. This is so because the remaining shareholders who make a quorum are the ones who have complained about S's role in company. They J.M and D are the ones who authorised the payroll staff to pay her 10,000 instead of 30,000. Therefore they will unanimously vote to change or after the articles in which will paid 10,000 Pounds for her part time role in the company. In this case the vote will only be 3-1, which is in consequential, She can only object it the meeting was not properly convened as per the procedure laid down (as explained in question 2 above) or the voting procedure as explained in the companies act was not followed. The act allows voting by: - (I) Show of hands and prey member present shall have one vote; and (II) On a poll, the voting rights of members shall be as laid down in the act. These are the only grounds in which can challenge an object to the resolution passed at the meeting. Her eviction was proper because her intention was to protest loudly so as to cause disturbance so that the meeting cannot proceed. Bibliography 1. S. Griffin, Fundamental principles, 4th edition, 2005 2. D. Keenan Company Law, 13th Edition., 2005 3. B. Pettet, Company Law, 2nd edition, 2005 4. Smith & Keenan, Company Law, 13th edition, 2005, ISBN13: 9781405811606 5. http://www.yale.edu/yalelj/about.html 6. P. Para jape, Company Law, 2nd edition, 2000, Central Law Agency. 7. www. Wikipedia free encyclopaedia. 8. K. Kishore, Company Law and secretarial practice, 1st edition, Asia publishing agency 9. D. Ratanlal, Mercantile Law, 20th edition, 2001, Central Law agency. 10. www.uksa.org.uk Read More