Situation 1: Yes, the breach has taken place in the first situation. A director must pursue the interest of the company and the stakeholder in the utmost good faith. A company and a director are two different personalities in the eyes of law. So, taking out the sum from the account of the company and using it for personal debt is the usage of money for material personal interest and as per Corporations Act, the director should not make decisions in her interest. Thus, taking out the money from the business and using it for personalized gain is a breach of duty of the director.
Situation 2: No, no breach has been carried out in the company. According to the Corporations Act duties of directors, they should make a judgment with a purpose that is appropriate and also in the good faith of the company. This has been carried out by her in the situation. She had information that company is in a situation that is financially serious so she transferred the assets to a new proprietary company created by her to carry out the same business (Hargovan, 2017). The judgment was appropriate and was required in the good faith of the company. Thus, no duty was breached in the situation.
Situation 3: Business judgment rules save the directors of the corporation from any legal allegations that are frivolous in carrying out the business (Hauser, 2018). Board is supposed to act in the "good faith" of the corporation. In the given situation, the business judgment rule will not help as the board has already passed a resolution for a business practice where the credit limit is at $20000 and she allowed a debt of $25000 who had a history of bad debts. This was not an appropriate decision to be made and hence business judgment rule will not help.
Member: Member refers to that person who has their name entered in the member’s register for the company. Every single detail about the person which includes name, address, date of becoming the member, etc. is registered during this process. The liabilities of each member are limited according to the number of shares that are being held by them for the company. In the case of a company that is unlimited members are required to contribute through their assets for paying off their debts. The members are not supposed to take part in the company's management as it is being taken care of by the directors while the right to appoint any director or remove them is in the hand of members.
Shareholders: A person or any individual who has the shares of private or the public company is considered as a shareholder. A person is not considered as a shareholder until the shares are being allotted to him/her. They are considered as the owner of the company according to the shares that are being held by them.
By subscribing the memorandum of association and signing it as a person becomes a member
If someone’s name is registered in the depository record then also he/she can become a member.
If the shares are transferred by transmission or any transfer and the name is registered in the register then also a person can become a member (Ricks, 2016).
Also, if any person takes the qualification share and pays accordingly then also he/she can become a member of the company.
Any person can become a member of the company if he/she agrees in writing and get his/her name registered in the member's register of the company. Shareholders can also become a member if they agree in writing and also by transfer and transmission of shares.
There are various ways in which a person can be removed from the membership and it includes the following:
Transfer of membership: If any member dies then legal heir becomes a member and the deceased person ceases from membership.
Surrender of membership: Once the member surrenders his/her share and that surrender is accepted by the board membership cease to exist.
Forfeiture: If there is loss or selling of the share then also a member is terminated from the company.
Share buyback: If the company purchases back its share then also membership ceases to exist.
The directors of the company include Vesna, Sergey, Ilyych, Mikhail, and Zviad. The duties of directors are a combination of statutory, common law and obligations divided equally by the corporation that employs them.
Directors are considered as an agent of the company that means the directors are not directly liable and all the activities are carried out on the name of the company. It is considered in general law that directors should act in good faith and not to the contrary interest of the company. Also under statutory duties under Section 183, it is considered as the duty of the director to not misuse any information for gaining an advantage.
Vesna is functioning in a contradictory manner. She possesses all the information and is helping his brother's company Dough in the same business. It might happen that she is not sharing any information but it is in contradiction to the statutory duty of directors.
Also, under the general law, the director must avoid conflict of interest and also they must retain discretion. Ilyych joining the other company in the same field as a board member will contrast this law or duty of the director. With that Sergey being no-interest in the field of business and not paying any attention to the boards financial and still maintaining a seat at the boards and taking a decision is against the statutory duty of director under section 181 where it is required that the directors are supposed to act in the good faith and best interest of the company. Thus, there are various contradictions concerning statutory and common law position of directors and measures are required to correct it.
Buyback has certain legal implications and Joe needs to take care of these before buying back the shares:
The permissible limit up to which Joe can buy back the share is 25% of the paid-up capital and the reserves that are concerned with the company.
The resources that Joe can be used to buy back should only include free reserves. If Joe purchases back its shares than the sum that is according to or equal to the purchased amount should be transferred to the capital redemption account and it is required to be disclosed in the balance sheet of the company (Quijani et al., 2018). The other source that can be used is the securities premium account or any other proceeds from the shares or any other securities that are specified.
Also, Joe should make sure that the buyback of shares is authorized by the articles of association and a special resolution should be passed which has to be approved in the general meeting of the company.
Joe should check his balance sheet and see that no default is carried out in repayment of deposit or interest that is payable. Redemption or shares has been carried out appropriately and payment of dividends has been carried out and repayments of any loan have been made.
Also, before the buyback, it is required that a solvency form is filled by the company for the declaration to the registrar to update them about the capability of meeting the liabilities. Thus, Joe should consider these legal implications for his buyback plan.
Flywell Ltd. is a private Australian Domestic airline and is planning to raise funds through investors in exchange for shares. The company can raise funds from shareholders or the employees or subsidiary. To get the investor interested in the company 4 documents are to be provided to the investor. It includes
Prospectus: This document includes the maximum information that is required by the investor. It will include all the information that is required by the investor.
Offer information statements: This document has relatively lower requirements of disclosure. If the company plans to raise $9 million or $10 million then this statement will be used. It should also include the audited reports of the financial statements for the last six months.
Profile statement: A statement of the profile is to be attached that will set out the key information about the company and the offer.
But if the company plans to place a personal offer and there are no past offers that have been made then the company is not required to provide disclosure requirements. Thus, the company should raise funds by keeping these things in mind.
Hargovan, A. (2017). Corporate law: Foreign directors of Australian companies put on notice: No leniency for ignorance of duties. Governance Directions, 69(1), 37.
Hauser, P. (2018). Management audit-limits od internal auditing including the business judgement rule. Eur. Ins. L. Rev., 15.
Quijano, D., Salas, S., Monroy-García, C., & Velázquez-Abunader, I. (2018). Factors contributing to technical efficiency in a mixed fishery: Implications in buyback programs. Marine Policy, 94, 61-70.
Ricks, V. (2016). Strategic Shareholder and Member Voting Agreements Under Texas Business Entity Law. Baylor L. Rev., 68, 335.
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