Question 1 Directors’ Duties
Issue
For a business to register as a company it should satisfy the following requirements: a name, one or more shares and shareholders having limited and unlimited liability. Having directors is also a requirement. Once a venture has this, it can go ahead, apply for registration as stated in section 11, and send an application to the registrar. The application must be in a prescribed form and signed by each applicant; this includes the named directors and shareholders. The proposed company’s name and constitution should be included in the application, as stated in section 12. Once the application is properly filled and the registrar is satisfied, he/she issues a certificate of incorporation according to section 13. The certificate indicates that all requirements have been met, and it states the date of commencement of the incorporation. Unless further verification is needed, a certificate of incorporation serves as proof of a firm’s existence. An association has two fundamental legal concepts: the concept of legal personality, by which a company is treated in law as a separate entity from the members, and the concept of limited liability.
Since Martin and Robert came up with the idea of commencing a company, they should be identified under the Articles of Incorporation as directors. This Article also states voting rights and procedures, which are essential for future decision-making by a corporation. When a company is first formed, the founders are usually the first shareholders and may remain the shareholders if they choose to remain a small-scale business. In this case, Martin and Robert proposed the starting of the tour business to Helen and Steven and the four were the initial shareholders (Sutton, 2013).
Law
Bondholders are people who have invested money in a certain corporation and have ownership interest. They hold this interest in form of a ‘share’, which can be in any percentage; these persons have the potential to profit if the company does well. Each investor ought to receive a stock certificate from the corporation he/she holds a share; this documentation proves that an individual is a shareholder and can be used as verification in case of a disagreement. Shareowners have a duty to attend meetings and vote for directors; these meetings include the annual investor meeting and when there is an urgent matter, they are called for a special meeting (Miller & Clarkson, 2014).
There are two types of shareholders: those who have common stocks and those that have the preferred ones. Common shareowners enjoy the right to vote and are entitled to dividends, they also benefit from an increase in price of shares. Preferred bondholders are not entitled to vote, they get a fixed dividend unless the company is facing serious cash issues such as a liquidity crisis. Their dividends are not affected by the fluctuation of market prices. The rights and powers of investors are encapsulated in the Companies Act of 1993, which is, have the power to pass resolutions at shareowner meetings, voting out directors. The meetings can pass ordinary or special resolutions; a simple majority passes the ordinary resolution, which is over 50%, which is usually achieved by a show of hands in the meeting. The chairperson never votes unless it is to break a tie; this rule ensures that the holder of this person can act impartially when presiding over meetings. A special resolution requires 75% of the shareholders’ approval. This kind of resolution applies when the shareholders want to exercise power to alter or revoke the constitution, approve a major transaction, amalgamation or liquidation. This is covered in section 120 and 121 of the Companies Act. Shareholders can request for a statement of shares and information, which the company withholds. Investors can also buy out rights where the company buys back its shares. They also have the power to change the company’s name.
Application
As much as the board of directors is in charge of running day-to-day business affairs, there are decisions they cannot make without the bondholders; this restriction to avoid misuse of the executive authority held by the board. These decisions include alterations to shareholder’s rights, decisions involving major transactions, alterations to the constitution, and decisions concerning remuneration. In this case, the PTNZ Company should not have engaged in transacting $460, 000 and $70,000 without the presence of all shareholders. By using $460, 000, it left the company’s account was left zero and even worse, a $ 70,000 loan was acquired at high interest rate. The board of directors has fiduciary responsibility to shareowners, which is to protect their interests through contractual agreements: this rule was founded in the case of North American Catholic Educational Programming Foundation Vs Gheewalla.
Administrators duties are covered in section 131-138 of the Companies Act: duty of care; they have a responsibility of acting in good faith and in the best interest of the corporation. This is stated in section 137 of the Companies Act of 1993, directors must be exercise care, diligence and skill in all transactions they undertake on behalf of the company. They should be reasonable when making decisions like any reasonable men would do in their position; this is supported in Fletcher Vs. National Mutual Nominees Limited. Pamela, the Chief Financial Officer, was not diligent in her work for she did not do further inquiries to ensure the mini coaches will come with seats.
Section 133 covers proper purpose, directors actions should be for the company’s benefit and not for personal gain. This duty is widely misconstrued for it is not clearly cut out; in the case of Punt vs. Symons and Company Limited, the key players issued shares with the aim of creating sufficient majority so that they can have a special resolution passed. This deprived did was for the benefit of the company and the shares issued were not limited but fairly and properly issued.
In Piercy vs. Mills and Company Limited, the kingpins issued shares in order to have a majority and enable them to resist upcoming elections. Shareholders wanted to add three directors but the ones in power did not approve of this for they did not want to lose their control and for their friends over the company’s affair. Justice Peterson held that this was not proper use of power for issuing of shares was for personal gain (Cross & Miller, 2011).
Conclusion
Advice and delegation is encapsulated in Section 130 obligates directors to appoint a committee which will exercise powers which the directors have imposed. Section 138, authorizes directors to get professional advice and rely on information given by the experts. Section 135 and 136, covers the duty of reckless trading, directors should not agree to carry out transactions that may put the company at risk and cause serious loss. Top Dogs have a duty not to permit any conflict of interest. This duty is taken seriously in that if hypothetical there is a conflict of interest the director faces immediate consequences (Brown & Sukys, 2012).
Question 2
Remedies for Breach of Duty
The shareholders can choose to remove the administrators form their positions through passing a special resolution. Injunctions can apply restricting the director or company from doing specified acts. When a company breaches its duties, a shareholder can take the matter to court to have their rights enforced. The first step is an application order restraining the company from taking any action that is against the Constitution or the Companies Act of 1993.After this order is applied the company is directed to take actions that are within the Constitution, then the company is sued for breach of duty. If the corporation acted unjustly towards the investor then the company’s records are probed and compensation awarded (Emerson, 2015).
In this case, the agreement of purchasing of the mini coaches from the Mini Coaches Market Limited will be temporary put on hold, which makes this a voidable contract. A shareowner or a key player can bring proceedings on behalf of the association, and if the court is satisfied that there has been a breach, it will give remedies. The remedies can be monetary penalty, which vary from $5000 to $200,000 depending on which duty has been breached. Section 383, gives the court the power to disqualify a director for a period not exceeding ten years and to alter the company’s constitution.
Question 3
The proper document for the purchase of the mini coaches should have looked like this after all shareholders have approved of this investment.
We, the PTNZ Company kindly request you, the Mini-Coaches Market Limited to provide us with mini coaches that do not cost beyond $ 400,000.The mini coaches should be fully equipped and fitted with chairs and delivered within a week.
A half deposit for the mini coaches will be done and on delivery and satisfaction of the commodities, the other half will be paid.
Pamela Putty
Chief Financial Officer
References
Brown, G. &Sukys, P. Business law with UCC Applications Student Edition. New Jersey: Wiley
Cross, F. & Miller, R. (2011) The Legal Environment of Business: Text and Cases: Ethical, Regulatory, Global and Corporate Issues. Oxford: OUP
Emerson, J.D. (2015).Business Law (Barron’s Business Review). Oxford: OUP
Miller, R. & Clarkson, K. (2014).Business Law: Text and Cases. New Jersey: Wiley
Sutton, G. (2013). Start Your Own Corporation: Why the Rich Own their Own Companies and Everyone Else Works for them (Rich Dad advisors). New York: Crown Publishers
