Company Law Course Wrap Up Essay Example

will return again in other units. Lifting the Corporate Veil does not provide blanket protection to the members and officers of a company.

When acted with care, honesty, and good faith, the corporate veil protects members from liability. However, the veil can be lifted in cases of illegality and negligence. Both statute and common law allow for this. The session covered statutory exceptions to limited liability, which include reducing the number of members (note that while a company can operate with only one director for up to six months under UK law, this is not the case in Trinidad and Tobago), fraudulent and wrongful trading (applies during winding up process and can be inferred from "reckless disregard" in specific sections), disqualification of directors (can occur during normal operations or winding up process), abuse of company names (typically involves undervalued transfer of assets to a new company), and other offenses related to documentation. While the veil generally protects members and officers, it can be lifted in cases where statutory breaches result in strict liability. The Responsible Corporate Officer Doctrine, which holds decision-making officers liable, operates similarly to other legislation but is considered separate from lifting the veil.

Under specific conditions, the court has the power to ignore the corporate structure in accordance with common law. These conditions arise when individuals utilize the corporation as an agent or engage in fraudulent activities. If corporations act as shareholders and operate as a single entity with an implied agency relationship, their separate legal existence may be disregarded by the court. In cases of parent-subsidiary relationships, the court can also disregard the corporate veil if the subsidiary acts as an agent of

its parent company, if it is mandated by statutory or contractual provisions, or if it is merely a facade. Additionally, if a company engages in fraudulent behavior to evade court orders or legal obligations, it will be considered fraudulent; this determination typically applies to individual shareholders.

If the court needs to expose the company's members to liability, it will lift the veil.

Directors of a Company

The conduct of a director is primarily regulated by section 99 of the Companies Act. The responsibilities and obligations of a director are clear and straightforward. They must exercise the powers of the company, supervise its management (s 60), disclose any personal interests (s 93), act honestly and in good faith, and demonstrate the same level of care, diligence, and expertise that a reasonable person would display under similar circumstances.

The director will bear personal responsibility for any infringement of these requirements. Nonetheless, the company can shield a director from liabilities if they have acted honestly, in good faith, and in the best interest of the company (s 101). Section 99 should be scrutinized thoroughly concerning its wording and meaning as it corresponds to common law governing a director's conduct. A director must fulfill their fiduciary duty to the company by acting legally, honestly, and in good faith while advancing its best interest. Neglecting to do so would violate their fiduciary obligations towards the company.

The case of Pardy v Dobbin demonstrates how shareholders can protect directors by indemnifying them, as long as the director discloses their interest. Additionally, directors can be personally responsible for torts or criminal activities, particularly in cases involving fraud or

negligence. In these situations, they cannot rely on the corporate veil for protection. It is important to note that if a director engages in wrongful behavior motivated by personal gain, they can be held accountable (Blacklaws v Morrow, 2000 ABCA 175 (CanLII), paragraph 137). Therefore, personal liability only applies if it can be proven that the director's actions are separate from the company's interests or were explicitly instructed by the director.

When there is evidence of a fraudulent misrepresentation, it serves as proof of fraud. Fraud can be proven if the misrepresentation was made knowingly, with no belief in its truthfulness, or with reckless disregard for its truth or falsity. If any of these actions are proven, a director can be held responsible. In terms of criminal liability, directors who commit fraud for personal gain or against employer instructions will usually face both criminal and personal liability. In other cases of criminal liability, both the company and the accountable officer will be held liable.

The directing mind or identification principle holds that a corporation can be held accountable for the criminal actions of its "directing mind." If a director is deemed integral to the company and acts on its behalf within their designated responsibilities, their actions and intentions are attributed to the company itself. Consequently, the company can face criminal liability, even if the wrongdoing was not solely for its own advantage. However, this applies only when the director acted within their assigned work area. In cases of fraud benefiting only the director and not the company, corporate entity may escape liability. Section 99 of the Companies Act also governs other officers of a company.

Shareholders

A shareholder

is someone who has invested in a company and is seen as a member or co-owner. Legally, the shareholder is separate from the company itself, which is treated as its own individual with rights, privileges, liabilities, and responsibilities. The Companies Act governs their rights, privileges, liabilities, immunities, and meeting procedures. Furthermore, the shareholders' conduct towards each other and the company is regulated by provisions specified in the shareholders' agreement that may impose restrictions.

It is important to recognize that specific fundamental changes can only be made by the shareholders, particularly in the case of Minority Shareholders in Unit 6 Status. The concept of majority rules is firmly established and governed by both common and statutory law. As a result, protecting the company's interests becomes a significant challenge for minority shareholders.

The principle discussed in this paragraph is based on the landmark case of Foss v Harbottle [1843] 67 ER 189, which specifically addresses the limited rights of minority shareholders. Section 37(c) of the Interpretation Act further supports this principle. Another significant matter that arises from this is the proper plaintiff rule, stating that if the majority causes harm to the company, it is the responsibility of the company itself to initiate legal action. However, certain exceptions to the rule established in Foss v Harbottle are permitted by law as a means to acknowledge and address the disadvantaged position of minority shareholders.

The company, being an inanimate entity, cannot act independently. Consequently, the proper plaintiff rule has been modified to enable the minority to take action on behalf of the company. Nevertheless, whether these actions are authorized or rejected ultimately depends on the majority's decision. It is improbable that

they would permit the minority to act against them. However, there are situations where minority shareholders have the right to initiate legal proceedings against majority shareholders. This may entail commencing a derivative action, which is a lawsuit initiated by a shareholder (or director) in specific circumstances on behalf of the company.

The company solely profits from any benefit, instead of the shareholder. The minority has the authority to take legal action regarding specific acts that are forbidden for the majority. These acts encompass validating unlawful actions, engaging in fraudulent behavior against the minority, performing actions that necessitate a special majority, or impacting qualified minority rights.The minority shareholder has the ability to protect their personal rights and receive any benefits directly. The Companies Act provides rights for the minority shareholder to safeguard the company's interests against the majority's wishes. This act also permits derivative action under section 240, necessitating proper procedure before claiming any of these four common law rights. Minority shareholders have personal rights to dissent from resolutions that seek significant changes to the corporate entity (s 227) or prevent unfair behavior by the majority negatively impacting shareholders' interests (s 242). This legal right safeguards both individual and company interests. Legal protection is in place for minority shareholders regarding insider trading in public companies, which involves trading securities using unpublished price-sensitive information when individuals with fiduciary duty breach this duty through trading activities. Insider trading includes transmitting this information to another individual who then engages in trading based on it.

The possession of significant information can impact an investor's decision to buy or sell shares. If this information is utilized by an insider for personal gain, it

would violate different legal principles such as the Companies Act, Securities Industry Act, and common law principles. These principles cover accessing confidential information, breaching fiduciary duty or trust-based relationships, handling material confidential information, and using it for personal profit.

Winding Up and Dissolution

The process of liquidating a company's assets and distributing the resulting proceeds is referred to as winding up. Conversely, dissolution pertains to the termination of a company. The main concern in this context is trading while insolvent, which is governed by s 447(1) of the Companies Act.

This section discusses the issue of fraudulent trading, which occurs when a company continues to conduct business operations even though it knows or does not care that it cannot fulfill its financial obligations. Liability under this section is typically established when the court determines that a person did not take all necessary steps to minimize potential losses for the company's creditors. Key terms used in this section include intent to defraud, reckless disregard, debts and liabilities, knowingly, and personally responsible. The Central Bank case provides a comprehensive analysis of section 447(1) and the meaning of these terms. The use of such terms clarifies that individuals convicted of this offense intentionally or negligently engaged in these actions despite being aware of the company's inability to meet its financial obligations.

Any person who is guilty will be personally held responsible without any limit of liability. It should be noted that this applies to not only directors and officers, but also to anyone involved, such as an accountant who may have audited the accounts and been aware of the dire financial situation. This also includes past officers and directors.

Corporate Governance

Corporate governance has become very important in the last twenty years. There are various definitions, but they all revolve around good management practices that include accountability, transparency and honesty.

The need for codes of conduct in companies emerged from multiple financial scandals caused by the absence of crucial qualities. These codes tackled issues such as director remuneration, non-executive directors' roles, board reporting functions, and auditor and audit committee responsibilities. Eventually, a comprehensive combined code was created that integrated the main points from each individual code. While these codes lack legal enforcement, they function as a moral guide specifically for public companies to implement effective management practices. Private entities are also encouraged to adhere to these guidelines. Considering the involvement of diverse stakeholders, it is likely that these non-binding codes will be upheld as both public and private companies have an obligation to prioritize the company's and society's best interests.

Considering the potential harm to a company's reputation is key in ensuring adherence to codes of conduct. Failure to comply could result in legal ramifications, both under statutory law and common law fiduciary duties, even if the codes themselves do not stipulate penalties. This is particularly significant within the scope of Section 99 of the Companies Act and Unit 10 Partnerships.

A partnership is an unincorporated entity, also called a firm, consisting of two or more individuals, or a combination of individuals and corporations, or corporations alone (s 4, Companies Act). It represents the relationship between people who conduct a business together with the intention of making a profit (s 3(1), Partnership Act). The differences between a partnership and a company include:

unincorporated status, reliance on agency law, equal sharing of benefits and liabilities among partners, no requirement for formal establishment, and fewer statutory responsibilities. Certain factors do not necessarily constitute a partnership, such as joint ownership, sharing of gross returns without agency, and sharing of profits without a partnership agreement (Cox v Coulson and Stekel v Ellice). In the case of investing money to start a company or partnership before its incorporation, the individuals will not be considered partners until the company or partnership is formed (Spicer Ltd v Mansell). Partnership at will refers to partnerships that operate without a formal agreement or fixed duration.

The termination of a partnership by any partner at any time can be done with immediate effect. This termination also applies to ongoing partnerships.

Partners' Relations with Third Parties

Partners are considered as agents of each other, which gives them the authority to make decisions that will bind the firm. However, this authority does not apply in cases of fraud or other illegal activity. There is joint liability, and this liability may continue even after retirement. An agreement has the power to release a retiree from their liabilities. Liability and Holding Out refers to the situation where someone represents themselves as a partner of the firm, making them liable for the firm's debts when creditors seek payment. The liability of partners begins upon their admission to the firm and ends when they leave under normal circumstances.

An agreement can release an individual from any responsibilities. If there is

no such agreement, a former partner can still be held accountable for any breaches even after leaving. All partners must provide their consent to modify the terms of a partnership agreement.

Partnership Property

Partnership property refers to assets used for the partnership's objectives. Partnership assets can be titled under all partners' names, similar to co-ownership, or under the names of select partners or one partner.

Rights and Duties among Partners share equally in benefits and liabilities; (b) indemnify every partner for payments made and personal liabilities incurred by him in the ordinary and proper conduct of the business of the firm; or (ii) in or about anything necessarily done for the preservation of the business or property of the firm; (g) no person may be introduced as a partner without the consent of all existing partners; (h)…no change may be made in the nature of the partnership business without the consent of all existing partners; Any liability to a third party is recoverable against the partners jointly and severally. Tann v Herrington – duty of care, duty to act in good faith, skill Where this is disproved and some element of culpability is also proved, the individual partner only may be held liable.

Expulsion of a Partner

The concept of majority rule is not applicable in partnerships, particularly when it comes to expelling a partner. To expel a partner, all existing partners must unanimously agree at the formation of the partnership. If there are only two partners, expulsion will result in automatic dissolution of the partnership if one partner leaves. Expulsion must be carried out in good faith and for the overall benefit of the partnership.

Dissolution

of Partnerships normally occurs in three scenarios: 1) when a fixed term expires, 2) when the purpose for creating the partnership is fulfilled, or 3) when a partner dies or goes bankrupt. If a partner is insane, incapacitated, or engaging in misconduct, a request can be made to the court for a dissolution decree. Other reasons for dissolution include operating at a loss or if it is deemed fair and just. Challenges during dissolution include dividing the firm's assets and liabilities and determining whether the partnership will continue or dissolve based on legal cases such as Pathirana v Pathirana General vs Technical Dissolution.