Running Head: COMPANY LAW

1
Company Law

Question 1a) Explain to Sal and Omon the significance of Limited Liability for them
Business associations law most commonly referred to as business law are a part of law
that affect companies and business organisations such as corporations, partnerships, and
organisations concerned with humanitarian or commercial activities. The company or juristic
person has separate legal personality. Therefore, the people investing their money in the business
have limited liability. Limited company is where the liability of associates is limited by shares or
guarantees. Limited liability is when an individuals financial liability is limited to a fixed sum,
known as the persons investment in the company or partnership. When a company with limited
liability ids sued, then the plaintiffs are suing the juristic person and not the owners or investors.
The significance of limited liability to Sal and Omon is that, in case the business fails, then they
doo not risk their personal possession, and they cannot be made responsible for any unfulfilled
company obligations and debts that are more than the amount that each of them invested.
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 Sals name.
Case law is a set of existing rulings or precedents to make new interpretations of law, and
are not the same as statutory law. Case law in civil and common law traditions create differences
in the way courts render decisions. If the stock of new shoes belonging to the company is insured
under Sals name, in case of any loss, it implies that it is not the company that is insured but Sal
since the insurance policy creates s a contract between the insurer and the insured. Sal will be
required to pay part of the loss while the insurer pays the rest. Therefore, it is a terrible idea to
insure them under Sals name, but should be insured under the company name.

COMPANY LAW

Question 1c). Will Omon be able to take the matter to court instead of arbitration? Explain
using relevant case law.
The articles of association of Shoes Limited require that if the owners are in dispute with
the company, they should be decided by independent arbitration. However, Omon wishes to take
the matter to court. This should only happen if negotiations with Sal or invoking any other
formal mediation process fail. The mechanisms available for the courts to resolve the dispute
could be for Omon to start a minority shareholders action against Sal, since both Sal and Omon
are equal shareholders. Omon can ask the court to procure an account on who owns the company.
But what Omon can do depends on the written agreements are in place between him and Sal. If
Sals expenditures are have a significant impact on the business, then Omon can apply to the
court for an interim injunction to help the business function until the dispute is resolved. Omon
can go to court; where the court may appoint a provisional director to break the ties between him
and Sal, who has the powers to make decisions as a director and not as a shareholder.
Question 1d). Explain on what basis the liquidator will distribute the remaining assets of the
company, and how might Billy have better protected his position?
Shoe limited is insolvent because it is indebted to Natbank on a floating charge of 5000,
Midbank on a floating charge of 2000, Royal bank on a fixed charge over books debt of 1000,
Billy on a debt of 2000 for leather supplied, and Carol for one months wages. In limited
liability companies or partnerships, the liquidator will distribute the remaining assets to Omon
and Sal according to the balance in each members capital account. They have capital accounts
that start off with their initial investments in the business, and are increased when profits
allocated to them, and decreased when profits are distributed to them. In case, there is no
sufficient cash to pay each one of them, the amount in the capital account, then whatever cash or

COMPANY LAW

assets that remain are split according to their relative size of their capital accounts, which is fiftyfifty. However, Billy can send bills for the full amount of debt to the company, and if he was a
secured creditor whose debts are attached to the assets. He can claim property and sell it to cover
the debt. Creditors can only claim assets that are stated as collateral in secured loans, and they
can continue to send bills stating how much the company owes and demand payment.
Question 1e) Explain the differences between an incorporated company and a partnership
A partnership is a type of unincorporated business organisation where general partners
mange the business and are equally liable for its debt. Other individual partners known as limited
partners may invest. However, they cannot be directly involved in the management and are liable
to the extent of their investment. Each partner shares equal responsibility for the companys
profits or losses, and its debts and liabilities. The partnership itself does not pay income taxes,
but each partner has to report their share of business profits or losses on their individual tax
returns. A company is incorporated by drawing up a memorandum of association, which is
lodged with the companys house. In the UK, a private limited company or public limited
company are generally called corporations. Corporations such as Plc may be subject to takeovers
or mergers, since shares can be purchased by anyone, shareholders do not actively participate in
the activities of the business. In case of issuance of stocks, a PLC can raise capital which a LLC
cannot.

Question 1f) Explain using relevant case law, whether Sal and Omon could claim under a
statutory scheme to compensate employees injured at work, if one of them were to be injured
at work

COMPANY LAW

The eligible workers are entitled to compensations from the employers for sustaining work
related injuries or illness. The specific benefits are subject to state laws concerning workers
compensation, as well as company-specific policies on workers compensation claims.
Question 2) Explain what the general duties of directors are under the Companies Act 2006,
and how they reflect the common law
The Companies Act 2006 includes seven general duties as follows:

to act within the powers of the company;

to promote the success of the company;

to exercise independent judgment;

to avoid conflicts of interest;

not to accept benefits from third parties;

to declare any interest in proposing transactions or arrangements with the company;

To exercise reasonable care, skill and diligence.

The Companies Act 2006 (CA 2006) contains a number of provisions which affect

directors including the statutory codification of directors' duties. There are seven duties that
broadly reflect and codify the law which was in existence prior to the CA 2006. The codification
is not exhaustive. The directors still have certain duties under common law and equity.
Therefore, the pre-CA 2006 law on directors' duties will remain highly relevant.

COMPANY LAW

The Companies Act 2006 (2006 Act) is still young. The statutory statement of directors' duties
(the statutory statement) is younger still: in the case of sections 171 to 174, and in the case of
sections 175 to 177.
There is, nevertheless, already a significant body of 2006 Act-related case law, in
particular in relation to sections 171, 172 and 174. Taken together, these cases help to answer a
question much debated by market participants in recent years: does the statutory statement
merely codify the common law obligations of company directors, or does it mark a radical
departure?
The latest case law
In the debates on directors' duties that have raged since codification, the case law is a
resource that is at risk of being overlooked. More weight has sometimes been placed on less
authoritative sources such as ministerial statements and the explanatory notes to the 2006 Act.
The 2006 Act states, somewhat delphically, that:
1. The general duties are based on certain common law rules and equitable principles as
they apply in relation to directors and have effect in place of those rules and principles as
regards the duties owed to a company by a director (section 170(3)).
2. The general duties shall be interpreted and applied in the same way as common law rules
or equitable principles, and regard shall be had to the corresponding common law rules
and equitable principles in interpreting and applying the general duties (section 170(4)).

COMPANY LAW

3. While it is always necessary to submit the pre-2006 Act cases to the "section 170(3) and
(4) test", it cannot be doubted that the old common law rules and equitable principles
remain if not intact, then of continuing relevance.
4. The post-2006 Act cases vary in authoritativeness too, from persuasive opinions of the
Scottish Court of Session to decisions of the Court of Appeal. Most recently, a dissenting
opinion in a judgment handed down by the House of Lords addressed the relationship
between the 2006 Act and case law. A number of the judicial statements referred to in this
article is undeniably dicta of one sort or another.