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1 Shareholders (members) 2 Directors 3 Corporate control and minority protection

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

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1 Shareholders (members) 2 Directors 3 Corporate control and minority protection

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  1. 1 Shareholders (members) 2 Directors 3 Corporate control and minority protection 4 Partner’s Liability

  2. 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. (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.

  4. 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.

  5. 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

  6. (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. 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 voluntary winding up Varying rights of classes Altering mem. or art. Minutes kept No need to register Y Register in 15 days Y Register in 15 days (7) Resolutions

  8. (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

  9. 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.

  10. 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

  11. 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

  12. 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.

  13. 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.

  14. 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

  15. 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.

  16. 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

  17. (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.

  18. 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

  19. (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

  20. 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

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