Ownership of a Company

Introduction

In this assignment, I will be discussing about the scenario and the legal areas in which someone members may have been in breach of. I will also be deliberating whether if Susan as a shareholder, may also have liability as a director within the company and if he has breached any of her statutory duties.

Body

[1]Under the Companies Act 2006, the duties and responsibilities of a company director(s) has been set out in this Act. Under sections 171-182 of the Act, it provides the possibility and nature of these, by listing a clearly what the fiduciary obligations of the directors are. The Act frameworks the statutory government for the duties of directors’, that entails the seven principles that are a necessity obligation for directors. A Company Director(s) is a person or people whom are chosen to manage the company’s affairs, activities and financial state, to guarantee that all legislative requirements of the company, is met. Director(s) must be sure to act legitimately and reliably, and make decisions that will profit not only the company, but the members within the company too. It is the duty of the Director(s) to make sure that the company triumphs by attaining it’s corporate purposes.

Under sections 170-172 Companies Act 2006, company directors have an obligation to act by means of how far it can go. [2]In the case of Re Smith & Fawcett Ltd [1942] 1 All ER 542, which is very significant under section 172 of the Companies Act 2006, which concerns the importance of “the interests of the company”. Article 10 states that company executives could decline to enlist share exchanges. Mr Fawcett, one of the two executives and shareholders, had passed on to Mr Smith who is another executive of the company, declined to enlist an exchange of shares to the late Mr Fawcett’s agents. Also in the case of [3]Percival v Wright [1902] 2 Ch 401 it was held that the duty of care wasn’t to the shareholders but to the company itself. Swinfen Eady J made the following statement, “It was strenuously urged that, though incorporation affected the relations of the shareholders to the external world, the company thereby becoming a distinct entity, the position of the shareholders inter se was not affected, and was the same as that of partners or shareholders in an unincorporated company. I am unable to adopt that view…”

[4]A large portion of the shares were purchased, and the other half offered to the initiators. This case was held by Lord Greene that without mala fides, this was appropriate. Privately owned businesses are ‘much more analogous to partnership than to public companies’. He made this statement, [5]“The principles to be applied in cases where the articles of a company confer a discretion on directors … are, for the present purposes, free from doubt. They must exercise their discretion bona fide in what they consider – not what a court may consider – is in the interests of the company, and not for any collateral purpose”.

Under section 176 of the Companies Act 2006, Susan has an obligation to avoid undisclosed profits. [6]As demonstrated in the case of Boston Deep Sea Fishing and Ice Co V Ansell (1888) 39 Ch D 339, it is obvious that a business who rejects a representative wrongfully, will effectively protect the claim on the off chance that it in this way reveals proof of prior gross unfortunate behaviour by the worker, regardless of the possibility that it was unconscious of the offense when it fired the representative’s work. The issue for this situation was whether a similar guard applies where the business has neglected to make a PILON as per the terms of an agreement of work.

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[7]The Court of Appeal held that, without authoritative arrangements despite what might be expected, the business was not qualified for maintaining a strategic distance from the results of selecting, to practice the PILON clause on revelation that an outline expulsion could have been supported. It will only be right for Susan to return any profits that was made from this, back to the business. She has also breached her duty under section 182 and under section 172 of the Companies Act 2006, which is failing her duty to promote the success of the business.

[8]Under section 174 of the Companies Act 2006, Clayton is in possible break of his obligation to practice with “reasonable care, skill and diligence”. [9]This was first set out by Romer J in the case of Re City Equitable Fire Insurance Co [1925] Ch 407, were the case was regarding the duties of directors’ and precisely the duty of care of these directors’. This is to express that if a director for example is to be an expect in the field area of computers such as Clayton, who is a Software Engineer, the standard or care and knowledge that will be expected from him and toward his duties, will be that of a person who has high knowledge in this area. Clayton is an expect with computers so in this case, he has an expect in this area and as the director of the company, and obliged to follow his duties, he shouldn’t have allowed himself to be distracted and completed the task to the best of his abilities, by carefully checking that the computers are full functioning. Not only was he unprofessional in his duty, he was cost the company a loss, as the computers are worthless. As developed in Re D’Jan of London Ltd [1994] 1 BCLC 561, directors are obliged to perform unbiased duty of care, founded on what must is deemed rationally and anticipated of a director. Similar standards was raised in the cases of [10]Dorchester Finance Co Ltd v Stebbing & Ors[1989] BCLC 498, were Dorchester Finance which had gone indebted, made a claim against Mr Stebbing and two other non-official executive bookkeepers who regularly marked limitless tickets to ride which were later countersigned by Mr Stebbing. It was held that executives of a business will undoubtedly act in compliance with common decency and considering a legitimate concern for the business. They additionally needed to show such ability and care as ought to be sensibly anticipated from individuals with their insight and experience.

Glen has breached his duties under the Companies Act 2006, section 177. Glen owns a duty of care to reveal her interest in the proposed contract. Glen didn’t act in good faith but rather, found a way to con more money out of the company. Members of Wireless Us Ltd, may choose to ratify the contract based on misconduct by the [11]“…director amounting to negligence, default, breach of duty or breach of trust in relation to the company”. As Glen failed to declare any profit that was made from this transaction, he is liable to make sure that all profits made has be paid directly back to Wireless Us Ltd. This was similarly demonstrated in the case of [12]Regal (Hastings) Ltd v Gulliver [1942] UKHL 1, that involved the regulation contrary to executives from captivating company chances in desecration of their obligation of allegiance. In this case the court held that, if a director takes advantage of a prospect, the director has breached his duties even if he was caught before being able to take advantage. Equally to what I stated earlier, the breach can be authorised. It must be distinguished that under section 182 of the Companies Act 2006, Glen obligates a criminal offence if he fails to unveil his interest with the ongoing contractual agreement.

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You could also say that both Susan and Glen, are both in breach of section 174 of the Companies Act 2006. As well as be in breach of exercising the independent judgment, under section 173 of the Companies Act 2006. The lawful results of the scenarios and conceivable remedies include: Ratification by individuals, under section 1157 of the Companies Act 2006 alleviation from court, and under section 175 of the Companies Act 2006 which is the capacity for executives to approve. It is vital to note that under section 232 of the Companies Act 2006, the organisation is restricted from giving directors repayment in regard of rupture of obligation.

Cliff, Glen and Clayton own a duty of care to Faith to treat her equally as they do with other members with the Company. [13]As directors of the company, they are breaching their executive obligation by not acting accordingly to their position. It is the duty of the directors to make sure that they provide their employees with the resources they need, in order from them to able to do their job as per instructed. Under the Companies Act 2006, it is obligatory that the directors to respect the interests of their employees. Meaning that, they must listen to the request of their employees, as well as take into consideration anything they may request for, especially if the request made is in benefit of the company, and if their will also impact the outcome of their job performance.

Shareholders and executives have two totally unique parts within a corporation. Shareholders only own the company by their possession of the shares that they have bought within the company. Whilst directors, are those that manage the cooperation and, have a say in how it’s operated. Unless it has been stated otherwise, a shareholder shouldn’t and neither does it have right to act as a director. The same applies to that of a director. In this case, doesn’t have any liability as the director or the company, as it is specified that she is only a shareholder.

[14]The partition in law amongst executives and shareholders can bring about disarray in privately owned businesses. On the off chance that a few people set up a business together they regularly consider themselves to be “accomplices” in the business. That relationship is frequently spoken to in a business, by them all being both executives and shareholders. The issue with this is that, Company Law requires a few choices to be made by the executives in executive gatherings and others to be made by the shareholders, by composed resolutions or by resolutions at a general gathering. In a rather off chance way, you could say that shareholders do have a say in the company’s management/decisions as under the Companies Act 2006, when it comes to some choices such as changing the articles with in company, the executives of the company cannot do so, without consulting and getting consent, from the shareholders’.

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Conclusion

Under section 40 of the Companies Act 2006, it is intended to manage the cost of assurance to guiltless third party, that go into exchanges with the business, and gives that, for a man managing a business in accordance with some basic honesty, the force of the executives that tie with the business, or approve others to do as such, is esteemed free of any restriction under the business’ constitution’.

A third party will automatically assume that the directors of the company have some sort of authority to bind the company, with there is no establish power in the company. This is a typical entanglement executives fall into and convey chance they may not by any means figure it out. Company executives will owe a trustee obligation and an obligation of care, regardless of whether this is set out in their contractual agreement. These obligations apply to both official and non-official executives. The statutory obligations supplant many existing precedent-based law and even-handed standards. The statutory obligations are owed to the business and only the business will have the capacity to authorise them.

Bibliography

‘Companies Act 2006 Section 239’, (legislation.gov.uk) <http://www.legislation.gov.uk/ukpga/2006/46/section/239> accessed 18 December 2016

‘Duties and Personal Liabilities of A Company Director’, <http://www.dba.org.uk/pdfs/519-2%20Duties%20of%20a%20Company%20Direc.pdf> accessed 18 December 2016

‘In Re Smith and Fawcett Ltd: CA 1942’, (Company, 22 August 2016) <http://swarb.co.uk/in-re-smith-and-fawcett-ltd-ca-1942/> accessed 18 December 2016

Kershaw D, Company law in context: Text and materials (2nd edn, Oxford University Press 2012) 335

‘Boston deep sea fishing and ice Co v Ansell: CA 1888’, (Agency, 9 July 2015) <http://swarb.co.uk/boston-deep-sea-fishing-ice-co-v-ansell-ca-1888/> accessed 18 December 2016

Belcher A, Directors’ decisions and the law: Promoting success (Routledge 2013) 78

Mäntysaari P, Comparative corporate governance: Shareholders as a rule-maker (Springer-Verlag Berlin and Heidelberg GmbH & Co. K 2005) 182

‘Regal (Hastings) Ltd v Gulliver: HL 20 Feb 1942’, (Company, 28 July 2016) <http://swarb.co.uk/regal-hastings-ltd-v-gulliver-hl-20-feb-1942/> accessed 20 December 2016

Hannigan B, Company law (Oxford University Press 2015)

Worthington S, Sealy & Worthington’s text, cases, and materials in company law (Oxford University Press 2016) 338


[1] ‘Duties and Personal Liabilities of A Company Director’, <http://www.dba.org.uk/pdfs/519-2%20Duties%20of%20a%20Company%20Direc.pdf> accessed 18 December 2016

[2] ‘In Re Smith and Fawcett Ltd: CA 1942’, (Company, 22 August 2016) <http://swarb.co.uk/in-re-smith-and-fawcett-ltd-ca-1942/> accessed 18 December 2016

[3] Sarah Worthington, Sealy & Worthington’s text, cases, and materials in company law (Oxford University Press 2016) 338

[4] ‘In Re Smith and Fawcett Ltd: CA 1942’, (Company, 22 August 2016) <http://swarb.co.uk/in-re-smith-and-fawcett-ltd-ca-1942/> accessed 18 December 2016

[5] David Kershaw, Company law in context: Text and materials (2nd edn, Oxford University Press 2012) 335

[6] ‘Boston deep sea fishing and ice Co v Ansell: CA 1888’, (Agency, 9 July 2015) <http://swarb.co.uk/boston-deep-sea-fishing-ice-co-v-ansell-ca-1888/> accessed 18 December 2016

[7] ‘Boston deep sea fishing and ice Co v Ansell: CA 1888’, (Agency, 9 July 2015) <http://swarb.co.uk/boston-deep-sea-fishing-ice-co-v-ansell-ca-1888/> accessed 18 December 2016

[8] Alice Belcher, Directors’ decisions and the law: Promoting success (Routledge 2013) 78

[9] Petri Mäntysaari, Comparative corporate governance: Shareholders as a rule-maker (Springer-Verlag Berlin and Heidelberg GmbH & Co. K 2005) 182

[10] Dorchester Finance Co Ltd v Stebbing & Ors[1989] BCLC 498

[11] ‘Companies Act 2006 Section 239’, (legislation.gov.uk) <http://www.legislation.gov.uk/ukpga/2006/46/section/239> accessed 18 December 2016

[12] ‘Regal (Hastings) Ltd v Gulliver: HL 20 Feb 1942’, (Company, 28 July 2016) <http://swarb.co.uk/regal-hastings-ltd-v-gulliver-hl-20-feb-1942/> accessed 20 December 2016

[13] Brenda Hannigan, Company law (Oxford University Press 2015)

[14] Brenda Hannigan, Company law (Oxford University Press 2015)

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