8/9/2019 Explain to Sal and Omon the Significance of Limited Liability for Them

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Running Head: COMPANY LAW 1

Company Law

Question 1a) Explain to Sal and Omon the significance of Limited Liability for them

Business association’s aw most commony !e"e!!ed to as #usiness aw a!e a pa!t o" aw

t$at a""ect companies and #usiness o!ganisations suc$ as co!po!ations% pa!tne!s$ips% and

o!ganisations conce!ned wit$ $umanita!ian o! comme!cia acti&ities' ($e company o! )u!istic

 pe!son $as sepa!ate ega pe!sonaity' ($e!e"o!e% t$e peope in&esting t$ei! money in t$e #usiness

$a&e imited ia#iity' Limited company is w$e!e t$e ia#iity o" associates is imited #y s$a!es o!

gua!antees' Limited ia#iity is w$en an indi&idua’s "inancia ia#iity is imited to a "i*ed sum%

+nown as t$e pe!son’s in&estment in t$e company o! pa!tne!s$ip' W$en a company wit$ imited

ia#iity ids sued% t$en t$e painti""s a!e suing t$e )u!istic pe!son and not t$e owne!s o! in&esto!s'

($e signi"icance o" imited ia#iity to ,a and Omon is t$at% in case t$e #usiness "ais% t$en t$ey

doo not !is+ t$ei! pe!sona possession% and t$ey cannot #e made !esponsi#e "o! any un"u"ied

company o#igations and de#ts t$at a!e mo!e t$an t$e amount t$at eac$ o" t$em in&ested'

Question 1b) Explain, using case law, under whose name the stock of new shoes belonging to

the company should be insured, and why it would be a terrible idea for them to be insured

under Sal ‟ s name

Case aw is a set o" e*isting !uings o! p!ecedents to ma+e new inte!p!etations o" aw% and

a!e not t$e same as statuto!y aw' Case aw in ci&i and common aw t!aditions c!eate di""e!ences

in t$e way cou!ts !ende! decisions' -" t$e stoc+ o" new s$oes #eonging to t$e company is insu!ed

unde! ,a’s name% in case o" any oss% it impies t$at it is not t$e company t$at is insu!ed #ut ,a

since t$e insu!ance poicy c!eates s a cont!act #etween t$e insu!e! and t$e insu!ed' ,a wi #e

!e.ui!ed to pay pa!t o" t$e oss w$ie t$e insu!e! pays t$e !est' ($e!e"o!e% it is a te!!i#e idea to

insu!e t$em unde! ,a’s name% #ut s$oud #e insu!ed unde! t$e company name'

8/9/2019 Explain to Sal and Omon the Significance of Limited Liability for Them

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COMPANY LAW /

Question 1c) !ill Omon be able to take the matter to court instead of arbitration" Explain

using rele#ant case law

($e a!tices o" association o" ,$oes Limited !e.ui!e t$at i" t$e owne!s a!e in dispute wit$

t$e company% t$ey s$oud #e decided #y independent a!#it!ation' Howe&e!% Omon wis$es to ta+e

t$e matte! to cou!t' ($is s$oud ony $appen i" negotiations wit$ ,a o! in&o+ing any ot$e!

"o!ma mediation p!ocess "ai' ($e mec$anisms a&aia#e "o! t$e cou!ts to !eso&e t$e dispute

coud #e "o! Omon to sta!t a mino!ity s$a!e$ode!’s action against ,a% since #ot$ ,a and Omon

a!e e.ua s$a!e$ode!s' Omon can as+ t$e cou!t to p!ocu!e an account on w$o owns t$e company'

But w$at Omon can do depends on t$e w!itten ag!eements a!e in pace #etween $im and ,a' -"

,a’s e*penditu!es a!e $a&e a signi"icant impact on t$e #usiness% t$en Omon can appy to t$e

cou!t "o! an inte!im in)unction to $ep t$e #usiness "unction unti t$e dispute is !eso&ed' Omon

can go to cou!t0 w$e!e t$e cou!t may appoint a p!o&isiona di!ecto! to #!ea+ t$e ties #etween $im

and ,a% w$o $as t$e powe!s to ma+e decisions as a di!ecto! and not as a s$a!e$ode!'

Question 1d) Explain on what basis the li$uidator will distribute the remaining assets of the

company, and how might %illy ha#e better protected his position"

,$oe imited is inso&ent #ecause it is inde#ted to Nat#an+ on a "oating c$a!ge o" 2333%

Mid#an+ on a "oating c$a!ge o" /333% Roya #an+ on a "i*ed c$a!ge o&e! #oo+s de#t o" 1333%

Biy on a de#t o" /333 "o! eat$e! suppied% and Ca!o "o! one mont$’s wages' -n imited

ia#iity companies o! pa!tne!s$ips% t$e i.uidato! wi dist!i#ute t$e !emaining assets to Omon

and ,a acco!ding to t$e #aance in eac$ mem#e!’s capita account' ($ey $a&e capita accounts

t$at sta!t o"" wit$ t$ei! initia in&estments in t$e #usiness% and a!e inc!eased w$en p!o"its

aocated to t$em% and dec!eased w$en p!o"its a!e dist!i#uted to t$em' -n case% t$e!e is no

su""icient cas$ to pay eac$ one o" t$em% t$e amount in t$e capita account% t$en w$ate&e! cas$ o!

8/9/2019 Explain to Sal and Omon the Significance of Limited Liability for Them

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COMPANY LAW 4

assets t$at !emain a!e spit acco!ding to t$ei! !eati&e si5e o" t$ei! capita accounts% w$ic$ is "i"ty6

"i"ty' Howe&e!% Biy can send #is "o! t$e "u amount o" de#t to t$e company% and i" $e was a

secu!ed c!edito! w$ose de#ts a!e attac$ed to t$e assets' He can caim p!ope!ty and se it to co&e! 

t$e de#t' C!edito!s can ony caim assets t$at a!e stated as coate!a in secu!ed oans% and t$ey

can continue to send #is stating $ow muc$ t$e company owes and demand payment'

Question 1e) Explain the differences between an incorporated company and a partnership

A pa!tne!s$ip is a type o" uninco!po!ated #usiness o!ganisation w$e!e gene!a pa!tne!s

mange t$e #usiness and a!e e.uay ia#e "o! its de#t' Ot$e! indi&idua pa!tne!s +nown as imited

 pa!tne!s may in&est' Howe&e!% t$ey cannot #e di!ecty in&o&ed in t$e management and a!e ia#e

to t$e e*tent o" t$ei! in&estment' 7ac$ pa!tne! s$a!es e.ua !esponsi#iity "o! t$e company’s

 p!o"its o! osses% and its de#ts and ia#iities' ($e pa!tne!s$ip itse" does not pay income ta*es%

 #ut eac$ pa!tne! $as to !epo!t t$ei! s$a!e o" #usiness p!o"its o! osses on t$ei! indi&idua ta*

!etu!ns' A company is inco!po!ated #y d!awing up a memo!andum o" association% w$ic$ is

odged wit$ t$e company’s $ouse' -n t$e 89% a p!i&ate imited company o! pu#ic imited

company a!e gene!ay caed co!po!ations' Co!po!ations suc$ as Pc may #e su#)ect to ta+eo&e!s

o! me!ge!s% since s$a!es can #e pu!c$ased #y anyone% s$a!e$ode!s do not acti&ey pa!ticipate in

t$e acti&ities o" t$e #usiness' -n case o" issuance o" stoc+s% a PLC can !aise capita w$ic$ a LLC

cannot'

Question 1f) Explain using rele#ant case law, whether Sal and Omon could claim under a

statutory scheme to compensate employees in&ured at work, if one of them were to be in&ured

at work 

8/9/2019 Explain to Sal and Omon the Significance of Limited Liability for Them

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COMPANY LAW

($e eigi#e wo!+e!s a!e entited to compensations "!om t$e empoye!s "o! sustaining wo!+

!eated in)u!ies o! iness' ($e speci"ic #ene"its a!e su#)ect to state aws conce!ning wo!+e!s’

compensation% as we as company6speci"ic poicies on wo!+e!s’ compensation caims'

Question ') Explain what the general duties of directors are under the (ompanies ct '**+,

and how they reflect the common law

($e Companies Act /33; incudes se&en gene!a duties as "oows:

• to act wit$in t$e powe!s o" t$e company0

•

to p!omote t$e success o" t$e company0

• to e*e!cise independent )udgment0

• to a&oid con"icts o" inte!est0

• not to accept #ene"its "!om t$i!d pa!ties0

•

to deca!e any inte!est in p!oposing t!ansactions o! a!!angements wit$ t$e company0

• (o e*e!cise !easona#e ca!e% s+i and diigence'

($e Companies Act 2006  <CA /33;= contains a num#e! o" p!o&isions w$ic$ a""ect

di!ecto!s incuding t$e statuto!y codi"ication o" di!ecto!s> duties' ($e!e a!e se&en duties t$at

 #!oady !e"ect and codi"y t$e aw w$ic$ was in e*istence p!io! to t$e CA /33;' ($e codi"ication

is not e*$austi&e' ($e di!ecto!s sti $a&e ce!tain duties unde! common aw and e.uity'

($e!e"o!e% t$e p!e6CA /33; aw on di!ecto!s> duties wi !emain $ig$y !ee&ant'

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COMPANY LAW 2

($e Companies Act /33; </33; Act= is sti young' ($e statuto!y statement o" di!ecto!s> duties

<t$e statuto!y statement= is younge! sti: in t$e case o" sections 1?1 to 1?% and in t$e case o"

sections 1?2 to 1??'

($e!e is% ne&e!t$eess% a!eady a signi"icant #ody o" /33; Act6!eated case aw% in

 pa!ticua! in !eation to sections 1?1% 1?/ and 1?' (a+en toget$e!% t$ese cases $ep to answe! a

.uestion muc$ de#ated #y ma!+et pa!ticipants in !ecent yea!s: does t$e statuto!y statement

me!ey codi"y t$e common aw o#igations o" company di!ecto!s% o! does it ma!+ a !adica

depa!tu!e@

The latest case law

-n t$e de#ates on di!ecto!s> duties t$at $a&e !aged since codi"ication% t$e case aw is a

!esou!ce t$at is at !is+ o" #eing o&e!oo+ed' Mo!e weig$t $as sometimes #een paced on ess

aut$o!itati&e sou!ces suc$ as ministe!ia statements and t$e e*panato!y notes to t$e /33; Act'

($e /33; Act states% somew$at dep$icay% t$at:

1' ($e gene!a duties a!e #ased on ce!tain common aw !ues and e.uita#e p!incipes as

t$ey appy in !eation to di!ecto!s and $a&e e""ect in pace o" t$ose !ues and p!incipes as

!ega!ds t$e duties owed to a company #y a di!ecto! < section 170(3)='

/' ($e gene!a duties s$a #e inte!p!eted and appied in t$e same way as common aw !ues

o! e.uita#e p!incipes% and !ega!d s$a #e $ad to t$e co!!esponding common aw !ues

and e.uita#e p!incipes in inte!p!eting and appying t$e gene!a duties < section 170(4)='

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COMPANY LAW ;

4' W$ie it is aways necessa!y to su#mit t$e p!e6/33; Act cases to t$e section 1?3<4= and

<= test% it cannot #e dou#ted t$at t$e od common aw !ues and e.uita#e p!incipes

!emain i" not intact% t$en o" continuing !ee&ance'

' ($e post6/33; Act cases &a!y in aut$o!itati&eness too% "!om pe!suasi&e opinions o" t$e

,cottis$ Cou!t o" ,ession to decisions o" t$e Cou!t o" Appea' Most !ecenty% a dissenting

opinion in a )udgment $anded down #y t$e House o" Lo!ds add!essed t$e !eations$ip

 #etween t$e /33; Act and case aw' A num#e! o" t$e )udicia statements !e"e!!ed to in t$is

a!tice is undenia#y dicta o" one so!t o! anot$e!'