Home design ltd is a private limited company which has been incorporated and operating since 2008. There are certain benefits to incorporation into a private limited company over a sole trader and partnership. These include; not having the requirement to hold and AGM, there is no limit set by statue on the value of share capital within the company and the company and its members are separated by the veil of incorporation. This principle was developed in the case of salmon v Salomon ltd Hl (1987) ac 22 in which it was held that a company is regarded in legal terms as a separate identity distinct from its members. This means the members of Home design ltd are only liable for their holding and not all e debts the company may have if it fails.
Home design ltd currently consists of three directors which under the companies act 2006 says that any person occupying the role of a director regardless of the title used will be deemed as a director. This can be seen in the case if Re Sykes (butcher) Ltd 1998 1 bcc 110 that any person who denies to be a director since a different title was used or they haven't been registered at companies house will be prosecuted as a de facto director if it can be proved they acted in the role as a director by completing the directors duties. (West law) A director key duty is the management of the affairs of the company on a day to day basis. A de facto director is a person that acts as a director but not appointed formally. This was also seen in the case of Re Moorgate metals ltd (1995) bcc 143. A director has certain general duties under the Companies Act 2006 which are; •
Duty to act within powers
Duty to promote success of the company
Duty to exercise independent judgement
Duty to exercise reasonable care, skill and diligence
Duty to avoid conflicts of interest
Duty not to accept benefits from third parties
Duty to declare interest in proposed transactions or arrangements (Company Law page 380-403)
The company also has four shareholders costing of Nigel, Lucinda, Ian and Mary. When each shareholder entered the company they would have agreed to a shareholders’ agreement. This agreement is a contract which consists of how they want the company to be run and certain aspects of their relationship to the company and each other. (Running a limited company. 4.3)
Mary is a shareholder who holds 5% of the shareholding meaning she is a minority holder. A shareholder is a person which has an interest in the company measured by a sum of money for the purpose to receive dividends. (s540) A dividend is a share of the end of year profits payable if the directors exercise their power.
Mary’s main problem is she is concerned with the way the directors are running the business, as they are making risky business decisions which are more for the directors benefit not the members. This goes against the directors duty previously mentioned to promote the success of the business for the members as a whole. The first method to address this would be to bring the concerns up at a general meeting. Since Mary only holds 5% of the shareholding she would need to ask one of the other shareholders to request a meeting since under the Companies Act 2006 s303 members holding one tenth of the holding can request a general meeting to be called. Other than this she would need to wait for one to be called and then as see fulfils the requirement of holding at least 5% of the shareholding she will be able to put an item on the agenda. This would mean the directors would need to explain their actions and justify that it is for the benefit of the company otherwise they will need to change their actions.
Under article 4 Mary will be able to exercise certain powers to direct the manner in which the directors run the company through a special resolution. A special resolution requires 75% if the shareholding to pass which will be a problem as Nigel holds 40%. Looking at Mary’s concern that a dividend...
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