17 Responsibility of Shareholders and Director

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1 Shareholders (members) 2 Directors 3 Corporate
control and minority protection 4 Partners
Liability
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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
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(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.
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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.
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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
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(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
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(7) Resolutions
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(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 directors shares
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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 21,
while the brother claimed it had been defeated by
23. House of Lords
Defeated by 23.
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2.2 Remuneration (1) Not entitled to any
remuneration (2) Expenses 2.3 Directors
power (1) Wide range of powers to manage
company (2) As agent of company (3) Apparent
authority third party protection
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2.4 Directors duties (1) Fiduciary duty Act
for the best interest of the company No
conflict of interests (2) Non-fiduciary duty
Care and skill
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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.
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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.
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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 partners personally. (3)
Exception Partner so acting has no authority,
and The third party knows this
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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.
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4.2 Firms liability for partners 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
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(3) Suing the partnership May be sued in the
firms name If judgment is enforced against one
of the partners, he may claim a contribution from
his fellow partners.
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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 firms capital profits (2) Indemnity
Indemnify partners expenses in the ordinary and
proper conduct of business
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(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 firms
place of business (8) Expulsion of partners By
majority vote, if authorized to do so
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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