Transcript 17 Responsibility of Shareholders and Director

1 Shareholders (members)
2 Directors
3 Corporate control and minority protection
4 Partner’s Liability
1 Shareholders (members)
1.1 Membership
(1) Becoming a shareholder
* Subscribing for shares
* Buying shares from existing members
* Inheriting shares from a member
(2) Ceasing to be a member
* Death, giving away or selling shares
* Removing his name from the register
(3) Articles bind members and company
* Company is bound to each member in his capacity as member
* Each member is bound to company
* Each member is bound to every other member.
Case 1: Eley v PLA Ltd (1876)
Eley was member of PLA and articles saying that he should be
solicitor for life. The company dismissed him and he sued claiming the
articles gave him a contractual right to stay in the job.
Court of appeal: Eley lost. He was suing in his capacity as dismissed
employee.
Case 2: Hickman v KSBA (1915)
The articles provided that any disputes between members and
company had to be settled by arbitration. The company wanted to
expel Hickman and he applied to the court for injunction to prevent
this.
Court:
No injunction. He should resort to arbitration.
1.2 Members at company meeting
(1) Types of company meeting
* AGM
* EGM
(2) Notice of meetings
* AGM, 21 days
* EGM, 14 days
(3) Conduct of meetings
* Quorum
* Proxy: not count as quorum
(4) Voting
* Normally by show of hands, OPOV
* Poll, if member demands so, OSOV
(5) Proxy
* General: discretional power
* Special: to vote as instructed
(6) Minutes
(7) Resolutions
Ordinary
Extraordinary
Special
Proposal by BOD
Y
Y
50% majority
75%
75%
Proxy: Y
Y
Y
AGM: 21 days notice
EGM: 14 days notice
Y
Y
Y
Y
Decide
anything
except
reserved for extraordinary &
special resolution
Creditor’s
voluntary
winding
up
when
insolvent
Member’s
Minutes kept
No need to register
Y
Y
Register in 15 days
Register in 15 days
voluntary
winding up
Varying
rights
of
classes
Altering mem. or art.
(8) Company secretary
* May also be director
* Look after administration of company
2 Directors
2.1 Appointment & removal
(1) By ordinary resolution
(2) Enhanced voting power of the impeached director’s shares
Case: Bushell v Faith (1970)
300 shares of the company were owned by a brother and two
sisters, each were also directors. The articles provided in any
resolution to remove a director whose shares shall carry 3 votes
per share. The two sisters wanted to remove the brother. At AGM,
the two sisters voted for removal, and brother voted against. The
sisters claimed success by 2:1, while the brother claimed it had
been defeated by 2:3.
House of Lords:
Defeated by 2:3.
2.2 Remuneration
(1) Not entitled to any remuneration
(2) Expenses
2.3 Director’s power
(1) Wide range of powers to manage company
(2) As agent of company
(3) Apparent authority: third party protection
2.4 Director’s duties
(1) Fiduciary duty
* Act for the best interest of the company
* No conflict of interests
(2) Non-fiduciary duty
* Care and skill
Case: Re W & M Roth Ltd (1967)
A director of a company was also controlling shareholder, was
in poor health. He renewed his contract without revealing this
problem. The new contract offered him very generous pension
for his widow in the event of his death. He soon died and his
widow claimed for the pension.
Court: N. He made the contract not in the best benefit of the
company as a whole, but intending to benefit his wife.
3 Corporate control and minority protection
3.1 Majority control: majority dictatorship
(1) One controlling shareholder may lawfully manipulate the
company.
(2) The management may be in conspiracy with the controlling
shareholder.
(3) If shareholding is dispersed, the management may
manipulate the company.
(4) Minority shareholders do need special protection as we had
studied in the Chapter on Corporate Governance.
4 Partners’ liability
4.1 To outsiders:
Contract:
(1) No matter how disastrous a partner makes a contract, his fellow
partners will be completely bound by it.
(2) If firm assets are not sufficient to honor the contract, then it will
extend to each partner’s personally.
(3) Exception
* Partner so acting has no authority, and
* The third party knows this
Contract not made in the ordinary course of business
(1) The firm is not liable.
(2) The partner so acting is personally liable.
(3) His fellow partner is not liable.
4.2 Firm’s liability for partner’s tort
(1) Two situations firm is liable
* It is committed in the ordinary course of firm business.
* The other partners authorized it.
(2) Liability by “holding out”
* Apparent authority
* Holding out may be by words spoken or written, or by conduct
(3) Suing the partnership
* May be sued in the firm’s name
* If judgment is enforced against one of the partners, he may
claim a contribution from his fellow partners.
4.3 Partners’ legal relationship
4.3.1 Changes requiring unanimous consent
(1) Partnership agreement alteration
(2) Admission of new partners
(3) Varying partnership business
4.3.2 Default rules
(1) Capital & profits
* Equally share firm’s capital & profits
(2) Indemnity
* Indemnify partner’s expenses in the ordinary and proper conduct of
business
(3) Interest on capital & advances
* No interest on subscribed capital
* 5% p.a. on extra money (advance, loan)
(4) Management
* Each partner is entitled to management.
(5) Remuneration: N
(6) Disputes about ordinary matters
* By simple majority
(7) Partnership books
* Kept at firm’s place of business
(8) Expulsion of partners
* By majority vote, if authorized to do so
4.3.3 Duty of good faith
(1) Rendering true accounts & information
(2) Accounting for profits: handing in extra profit gained as
result of being partner
(3) Non-competition with the firm
4.4 Limited partnership and LLP
(1) Subject to registration with the Registrar of Company
(2) Two classes of partners: general partners, limited partners