Corporations Law

Introduction

Corporations law or company law is the law that is being used dominantly kind of business entities. It involve the study of how parties in behave in internal operation of a firm i.e. how shareholders,  employees, directors, creditors, and other stakeholders of a business entity interact with one another under the internal operations of a firm. Corporate Law is component a broader law of business associations. Trusts such as pension fund, partnerships and companies limited by guarantee are other examples of business associations. The law deals with big enterprises which has separate legal personality. The companies have limited liability for its shareholders who involve themselves in the sell and purchase of stocks. Corporations have certain characteristic which differentiate them from other companies. This includes;

Ø  Separate legal personality of the corporation.

Ø  Limited liability of the corporation’s shareholders.

Ø  Transferable shares

Ø  Control of the company placed in hands of board directors

Ø  Investor ownership.

Corporations are recognized by the law to have rights and responsibilities like persons. They can exercise rights against individuals and are responsible for violation of human rights due to the fact that corporations come into existence through its members. It can also get terminated when they run out of money i.e. insolvency. The corporations can be convicted whenever they commit any kind of criminal offence such as manslaughter and fraud. The major characteristic of a corporation is its legal independence from the stakeholders i.e. people who create it. In case of any failure of the corporation which might end up in shareholders loosing their money, employees are not liable for any debts that corporation creditors owe. This is because of the fact that employees are of limited liability. Shareholders do not own corporations since ownership involve social and economic interdependence.

Corporate law is divided into two categories;

Ø  Corporate governance which concerns matters relating to power relations within a corporation

Ø  Corporate finance which deals with rules on how resources of the company is being used.

Corporate governance is principally the study of the power relations between the board of directors, shareholders and employees. It also concerns other stakeholders, such as creditors, consumers, the environment and the community at large.

Basically, corporate law ensures that the agent i.e. the board of directors of the corporation act in the interest of the principal party (shareholders). There is possibility that some agent acts in their personal interest i.e. they are opportunistic hence violating the rule to act in the interest of the shareholders and the employees. The central objective of corporation’s law is to reduce the risks of agency cost which arises when the board of directors acts in their personal interest.

Section 1

From the case study given, having lived together as couple it means that both of them have equal ownership to the properties that they own. According to Tenancy by entirety, a general partnership law, a husband and a wife have equal ownership. In this case, a third party who has a claim against the husband cannot go after the property that the couple owns due to the fact the property also belongs wholly to the wife. Dave and Susie having lived as couple means that they have equal ownership to properties hence any claimant cannot go after the properties own by them incase of any breach of contract. Dave and Susie are in general partnership with the aim earning profits. According to law, before forming a general partnership it was vital to address some paramount issues in order to reduce possibility of disputes among the partners. It is mandatory to have a written partnership agreement. Issues addressed in the written agreement include;

Ø  Amount of capital contributed by each partner

Ø  Rights and responsibility of each person or partner

Ø  How profits are divided amongst the partners.

Ø  How assets will be distributed upon dissolution of the partnership. Partnership can dissolve at any time hence agreement provides rules for partner’s exit.

Upon dissolution of partnership, a partner can transfer a profit interest to an external party, but control cannot be transferred. Some of the options that can use when undertaking property transfer are;

Ø  Right of refusal. In this case the remaining partner is allowed to buy the share of the outgoing partner.

Ø  Right of first offer. This is a provision that requires the exiting partner to sell her shares to other partners.

Ø  Dutch auction which provides one partner the right to sell to the other partner at a particular price.

From the case given, there was no partnership agreement hence disputes arises upon dissolution of the business. It was recommendable for the couple to have a partnership agreement stipulating the above issues. Susie should have signed the loan form in which Dave borrowed money from the Whichbank. As a couple and that both of them are engage in business, Dave should have made sure that his wife signed the loan form so as to be liable incase of any default.

  Issues

Upon the dissolution of the partnership i.e. after the exit of Susie due to their family disputes, Susie will sue Dave for damages that she suffers i.e. inability to access the money in the bank and that all the money in the account had been used by Dave.

    Law

According to law, the court should rule the case in favor of Susie.

Reasoning

Since Dave and Susie have been living as a couple, it means that they have equal ownership to all premises that they jointly worked for. Under the law, what a husband owns is being equally owned by the wife. If even there was no partnership agreement, the fact remain that Susie was Dave’s wife hence they own properties jointly  and that Susie use to withdraw money from the joint bank account depicts that there existed a kind of partnership even if there was no partnership agreement form.

From the excerpt given, it is clearly revealed that the couple had opened their business account jointly using both names. This means that the couple was suppose to have equal share of the money in the bank. According to law, sharing of the gross returns from the jointly held property does not by itself mean that there is partnership existing but for the case of the couple, Susie received share of profits from the business since she was allowed to withdraw money from the joint account. This is not jointly owned property but it was proceeds from the business that they both engaged themselves. The court will hold that by virtue of Susie being in a position to access the money in the bank before the family dispute is clear evidence that the two were in partnership hence rule of partnership should apply even if there was no written partnership agreement form.  The law states that unless it was a receipt as payment as debt or wages it is a proof that the couple were in partnership business.

According to law, there are divorce rules that ensure that the partner in the weaker position get equal right with his partner. A law professor of Rutgers University once said, `the law treats sex break-up as a business deal between two people about property’. According to this professor, rules to be employed depend on the separation agreement the couple may have. There is legal recognition for couples who end their relationships according to law. The rules to be used when dealing with such phenomenon is inclined to equitable and fairness doctrines. According to Washington state appellate court, unmarried partner are entitle to equal share of the couple’s combined assets even if there was no written agreement or oral contract. In most states unmarried couples hypothetically make claims on money or property own by them basing on the agreements that are written or verbal or can be proved by patterns of conduct. From the excerpt given, we learnt that by patterns of conduct of the two people, equal sharing of the property and money should be exercise. Susie used to withdraw the money from the bank like his partner whenever they needed. This is a clear indication that there was a verbal agreement between the two.

Advice to Susie

It is advisory for Susie to sue Dave for damages she suffers as a wife but not as partner in business. This due to the fact that under any kind of partnership, there should be a written partnership agreement form which was not written in this form of partnership. The court of law will not recognize any kind of partnership where there is no written agreement. The court should order Dave to compensate Susie after their separation.

Susie should sue Dave for having withdrawn the money and used it alone. By the fact that at initial stages, Susie received interest from the proceeds of the business shows that they were partners. This is because the couple opened a joint account where the profits from the business were deposited and that Susie could also get access to the money can be use in the court of law to rule the case in favor of Susie.

Susie liability for debts

From the above discussion, we have learnt that the couple was in partnership even in the absence of partnership agreement form. This is because of the fact that Susie received the profits from the business which can act as clear evidence that the two were in joint partnership together.

According to law each partner in partnership is liable for the partnership’s obligations. In law, there are two types of liabilities;

Ø  Several liability

Ø  Joint liability

Under several liabilities, the partners are individually liable for the partnership obligations and any liabilities accruing after dissolution of the business. In joint liability the partners can be sue as a group but not individually as in the case of several partnership. In some countries, every partner is both severally and jointly liable for any debts and obligations of the business that was held jointly (partnership). There are rules of liability that are applicable to ay Partnership and this includes;

Ø  Each partner is liable for the actions of the other partner or partners.

Ø  Each partner is liable for his or her own actions

Ø  Each partner is liable for the actions of the employees of the business

According to the case study given, Susie did not sign any loan form hence she is not part of the contract that existed between the bank and Dave but she is the third party to the contract that existed between the Dave and the bank. According to rules stipulated above, each partner is liable for the actions of the other partner. From the case of Dave and Susie, they both withdrew the money from the joint account whenever they needed. This shows that each one of them acted on the capacity that they were in partnership hence each one of them had a right to profits from the business. In case of any default by Dave to pay back the loan he had borrowed to extent the business, then the bank can take action to both of them .Since the two were in joint partnership as shown by the received of profits from the business, each and every one is also liable for any debts and obligations of the partnership. According to rule 1, every partner is liable for the actions of the other partner. The business might become bankrupt due to the fact that each one of them could withdraw money from the joint account and used them for personal use. The bank has a right before court of law to take action against Susie since she was a partner to the business hence liable for all obligations and debts that the bank owes Dave. From the information given we realize that Dave borrowed the money from the bank to extent the business but not for personal use.

According to law, both spouses are legally obligated to for the expenses incurred by either of them. In this case, both of them are liable for payment of the banks money.

Right to withhold portion of the compensation

Dave has a right to withhold portion of compensation given to Susie in order to pay off the debt. In this case, we find that both of them were liable for all the debts incurred before separation. Susie has to pay for the part of loan since from patterns of conduct they joint partners. According to court of law, parties to partnership are liable for all debts and other obligations of the partnership. Again, on the capacity that Susie and Dave were unmarried couples, both of the two were liable for any debts incurred by the business. In relation to above excerpt, Dave has a right before the law to withhold portion of compensation to gather for the loan.

Conclusion

It is important for any partnership business to have written partnership agreement before the start of the business so as enable equal and fair distribution of the combined assets upon termination of the business. For the case above it might be quite difficult to put into effect the necessary laws to ensure that equity and fairness is practiced due to lack of any written agreement.

Section 2

Board of directors and Directors' duties

As directors of a company, Michael and Claire owe strict duties of good faith as postulated by most jurisdictions. All companies directors are owe duties of care and skills in order to pursue the company’s objectives and ensure that company and the stakeholder’s interests are safeguarded. The directors of company are should exercise their powers as postulated rules and regulations of directors. They should exercise their powers for the benefit of the organization and the members at large. Before putting any decision into effect it is essential for the directors to ensure they exercise these duties for the right purpose. For example, directors might make a decision to issue large number of new shares to defeat the potential take over bid but not with intention to raise the capital in the company. According to company laws, this is improper use of powers for improper purpose hence the directors are liable for any problem that might arise due to such decisions. It is also important that the companies’ directors have right skills and care so as to be able to maintain sufficient knowledge and should be able to carry out company’s business diligently. Directors should be able to properly discharge their duties for the benefit of the members of the organization.

I t is mandatory for the companies directors to ensure that there is no conflict of interest  or conflict with their duties to act in the best interests of the organization or company.. They owe strict duties to not to allow any such vices to occur in the company. This rule is so firmly imposed that, even where the conflict of interest or conflict of duty is solely theoretical, the directors can be forced to expel all personal gains arising from it.

Liabilities of the directors

From this excerpt, we notice that it is mandatory for the directors of a company to act in the interest of the members and the company at large.

Michael and Clare were appointed as the directors of the Woodcraft Pty Ltd hence had the duty to delegate their duties with diligence and care. In any organized structure of a company, the board of directors has a duty to conduct business of the company based on the powers as provided by the law or deed of partnership.

According to law, directors of a company have the contractual liability toward the company. This occurs when the director does not respect the duties imposed in the contract. The law according to section 2392 of Italian Civil code stipulates that the directors are jointly liable towards the company when they fail to perform their duties efficiently. It was the duty of Michael and Claire to ensure that they do anything to eliminate the negative consequences. We can learn that the two directors were not thoughtfully planning according to partnership deed rules. Due to the fact the two were also shareholders of the company, the court will ruled out that there was a possibility that the directors were not taking time and seek proper consultation before making any decision in order to make super normal profit hence also having an advantage.

According to Italian civil code, directors are required to be very vigilance when it comes to decision making. It is mandatory for them to have informed decision before implementation of any kind choices made by them. Operations on share capital and elaboration on balance sheet project duties cannot be delegated to directors. From the case given, we notice that the directors were acting beyond their stipulated duties as per code of law. The decisions such as expansion of the business were supposed to be handle by the principal of the company hence as the directors of the company Michael and Claire were acting beyond their capacity.

It is a requirement according to law that the delegate directors inform the principal director on the critical business operations and management conduct. This principal will conduct other advisors and auditors before putting into practices choices made. The directors acted beyond their capacity when they ordered timber from the Forest Pty Limited. In this case, the directors are liable for the debt that the company owes. It was recommendable to seek advice from the principal first due to the fact that the company was just a trustee of another company. For the case of investing in horse breeding the directors took the right step because they consulted their solicitor who advised them to proceed with the plan. In this case, the directors were acting with the vigilance hence failure of the object does not amount t to breach of contract by the directors. They sought paramount consultation from solicitor before putting the plan into effect. The purchase of the real estates was done after seeking advice from the solicitor hence the directors is not liable for the debts.

Advice to various creditors

The creditors to the Woodcraft Pty limited are;

Ø  Forest Products Limited Company

Ø  Eastpac Bank Ltd

Ø  National Finance Limited

          Forest Product Limited Company

In this case, the company directors are liable for the debts that this company owes Woodcraft Pty Limited. This is because of the fact that the directors of the company acted without due diligence in that they did not seek consultation from the principals. According to law, directors are liable for the debts that the company owes other parties if in case they fail to act according to partnership deed. Michael decided to expand the business without consulting the principal hence they liable to pay off the debt. It is advisory for the Forest Product Limited Company to sue the directors of the company for any damage or debts Woodcraft owe them.

Direct action by creditor against a director occurs when there is failure of the company due to particular duty of care arising from ordinary negligence of the directors

Eastpac bank

In this case Michael and Claire acted diligently and with care due to the fact that the directors were advised to expand the business operation by diversifying into horse breeding and real estate. The company directors are not liable for the debts the Woodcraft Company owe Eastpac bank. The bank can recover the money by suing the whole company for the debts the company owe the bank. Eastpac has the right before court of law to sue Woodcraft company for the breach of contract i.e. failure to pay back the loan. The directors are not liable for the debts because of the fact that they were advised by the solicitor.

National Finance Limited

Under this case, the directors borrowed the money from the bank to purchase real estate under the advice from the solicitor. This is a clear indication that the directors were acting in good faith for the interest of the shareholders and the company as whole. Woodcraft Company has a duty to pay back the loan. The directors cannot be sued for any damage that occurs to the bank since they were acting as directors and that they were given advice by the solicitor. The bank should the company but cannot extent the issue to properties of the shareholders including Michael and Claire sine it is a limited company.

Conclusion

In general, the company’s directors have a duty of care and diligence. They should act at the interest of the share holders. Any breach of duty by the directors makes them liable for the debts.

Section 3

Introduction

Different types of companies have different ways of management and that shareholders may either be limited or unlimited to the liabilities of the company. For corporate companies, the shareholders have unlimited liabilities in case of any breach of duty by the company pertaining certain contracts. For incorporate companies like the Down Turf Club, the members have unlimited liability i.e. in case of inability of the company to settle debts, then members assets can be used to clear the debts

Liabilities of various stakeholders

The club According to information given, the club has functioning organ i.e. the club committee. It is the duty of the committee to ensure the club is running smoothly. They are delegated the duties of running the affairs of the club. The committee was the one involved in organizing the social function hence they are liable for any damages that occurred. The club itself is not liable for any damages since the all duties are performed by the club committee hence are held liable for any damage that the guest suffered. According to court of law, the guest can enforce a law against the club for the damages they suffer.

Ordinary members Since the club is run by club committee, then the ordinary members are not responsible for any damages that incurred to the guest who attended the ceremony. Since these are the ordinary members of the club hence are not held responsible for any damages that the guest suffer from. The whole damage was due to the carelessness of the club committee who organized the social function. The committee are suppose to act diligently and carefully

Management committee It is the duty of the club committee to perform duties delegated to them by the other club members. The committee was supposed to act diligently to avoid the problem. If the committee had acted with care the all problem could not have arise. Due to the fact they allowed one of their members to influence them, they liable for any damages that occurred. The guests have the right before the law to sue the club committees for the damages. (Davies, 1997)

For this case, the treasurer who is part of the club committee is not liable for any damages. This is because of the fact he was on off duty hence he did not participated in the organization of the social function. According to law, any member of management committee is not liable for the damages that occurred when he or she was out of job. For this matter, treasurer has not potential liability for all damages incurred by the guest. Paul D (2004)

Michael According to the excerpt given, Michael was an influential member of the club. He influences the club committee to purchase the food stuff from his outlet. Michael is held responsible for damages that occurred after the social function. Due to the fact that Michael influenced the club committee to purchase the food stuff from his outlet, he is liable for any kind of damage due to food poisoning. We are told that Michael is an active participant in the running of the club, but for this incidence, he acted for his personal gain. He is deriving some gain from the purchase of the food stuff from his outlet. The club has the right to sue Michael for the damages (Paul, 2004)

Section 4a

Benefits of acquisitions

A company derives certain benefits after mergers and acquisition. Provincial Milers Company will derive a lot of benefits that can make the company to be very successful.

Through acquisition, companies are in position to take advantage of tax reduction. This is facilitated through use of companies within the group of companies.

 Through acquisition, the company is able to take the advantage of limited liability by use of incorporated entity. The holding company is in position to undertake high risk ventures by use of the subsidiary company due to the fact that with  limited liability, the holding company to be formed after Sharp and Smart acquiring the Provincial millers knows the maximum loss it can suffer. (Davies, 1997)

 Other benefits include:

Ø  Decentralization of decision making is enhanced

Ø  Flexibility is enhanced i.e. isolation of regulatory controls and regimes to separate entities but group strategies may be retained in many aspect such as operation and financing.

Ø  The ability to sell the business through the sale of shares

Ø  Maintaining of good will of the employees which could otherwise be threatened when there is complete disintegration of the company.

Ø  A different company may as well provide legislative force that enhances convenient and efficient unit management that was lacking in the holding company.

Sharp and Smart should be able to understand these advantage as it can help the company to prosper. (Paul, 2004)

 Conclusion

 In the current economy, acquisition and mergers are mo0dern fact of global commercial life. From commercial perspective, acquisitions is so prevalent that it has been adopted by many companies to achieve their economical goal due to the various benefits

Section 4b

Provincial millers are a general limited company whose affairs are run by the directors.

It is important to have careful thought before acquiring any business entity so as to ascertain the potential liabilities that the company could inherit because it might be financially fatal to the successor. According to the information given, Provincial millers company is very weak financially hence has a lot of debt. (Heydon, 1987).

Issue

Provincial millers has a lot of debts and it is unable the debt due its financial position. We are told that the company had a lot of contract with other company but there is suspicion that the companies might be having a lot of debt currently.

Law

Sharp and Smart are thinking wrongly. This is due to the fact that after acquisition all the debts of the acquired company are transferred to the acquiring company. According to law, all liabilities of the predecessor company are transferred to the successor company. It is upon the successor company to take correct procedures to protect itself against future litigation arising from predecessor liabilities.

According to international lawyer Atkinson of UK, liabilities of the acquired company are transferred to the successor company hence it is the successor company that is liable for any debt incurred by the predecessor before acquisition. He said this when he was handling UK case of Smith; Stone and Knight Ltd v. The City of Birmingham. (Heydon, 1987).

Advice

The successor company is responsible for the liabilities of the acquired company

Sharp and Smart have the opportunity to mitigate mulch of the risk which is not known to them through insurance protection. This insurance protection will provide monetary coverage for fro potential losses occurring due to future liabilities.

Again, Smart and Sharp should work closely with the legal council to ensure that the purchase agreement is drafted carefully so as to clearly show the way responsibility of the two companies is allocated.

Conclusion

In general, it is advisable for the acquiring company to come up with ways of mitigating future liabilities. Sharp and Smart should ensure that they take insurance protection.

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