Gemma is the sole director of this company which she has set up and is not aware of her duties and responsibilities as a sole trader.
This case scenario is a fit example of business and company law.The laws that apply to company and business matters are provided under the common law and The Company’s Act, 2006 of U.K.(Cth).
The rule that applies to this case ad scenario is the different sections of the Company's Act.This case pertains to the role and duties of directors-
The requirement to have a director.
There are certain general duties of the directors.
There are certain specific duties of the sole directors.
The scope of general duties.
a). S 155 of the Company’s Act 2006 says that a company must have at least one director who must be a natural person.
b). This includes holding of office by a person as a corporate sole. i..e, if there is a sole director who alone holds the office of the director or any person who sits at the office as a continuation of an office.
Gemma is the sole director of this company that she has set up and this is allowed under s 155 of the Company’s Act.
The responsibilities and duties of the directors are given under s 171-177. S 170 of the Company’s Act provides the scope and nature of the general duties.
S 170 provides that-
Regards the nature of the duties mentioned in s 171-177of the Company’s Act, it is well determined that the general duties are equitable and they are to apply just as equity principles would have been applied in absence of statutory duty. The interpretation given to general duties should also be given on equitable principles. The scope of these duties is that these are owned by the directors of the company and even if the directors are for some reason removed, they continue to have certain responsibilities like the duty to avoid conflict of interests given under sec 175 of the Company’s Act. 2006 and sec 176 that provides for avoiding to take benefits from third parties. These duties apply to shadow directors and sole directors as well.
Duty to act within the powers given to them by the company.
Duty to work for the benefit and success of the company’s business.
Duty to exercise an independent judgment wherever required.
Duty to take reasonable care, exercise skill, and work under due diligence.
Duty to avoid any conflict of interests between personal and professional matters.
Duty to not accept benefits from third parties.
Duty to make the declaration in case the Director has an interest in a transaction etc.
Since Gemma is the Director of the company. She has to follow all these rules about the responsibilities of a director. Moreover, being a sole director she also has to follow other duties that are specific to the sole directors like the one provided in S 186 of the Company’sAct, 2006. Sec 186 says-
1). Where a declaration of a conflict of interest is to be made in a company that has a sole director but the Company required to have more than one director, he can make the declaration in writing and that would be considered to be enough a communication at any meeting where all directors are present.
If Gemma’s company requires her to have more than one director, then she has to follow the rules given in s 186of the Company’s Act.
In case a company with a sole member enters into a contract with the sole member where the sole member happens to be the Director of the company as well the company has to ensure that the contract is in writing if not so then the contract is set out in the form of a written memorandum or recorder in the form of minutes. The contract if not so made would give rise to an offense for which every officer of the company would be held liable. For this section, the shadow director is also treated as a director. Moreover, the non –compliance of the above procedure does not affect the validity of this contract.
Applying all these laws to the present case, we can say that Gemma has to take on the general duties of the directors as mentioned in s 171-177of the Company’s Act, and in addition to these, she also has to follow the laws laid down in s 186of the Company’s Actbecause she is the sole director. Her duties just like the duty of every other director are based on equitable principles and need to be followed in a just and equitable manner for the benefit of the company. Gemma has to follow all these duties to perform well as the sole owner of the company.
The conclusion thereof is that as the sole director of the company Gemma has some duties and responsibilities which has to fulfill just like any other director of the company would have and she has to ensure that her special duties as a sole director as mentioned in s186of the Company’s Actare also complied with.
Gemma as the sole director of the company as well as the owner of the company wishes to terminate the employment of one worker named Chiranjeet because he has failed to perform his duties well in many instances.
As per the common law, an employer can terminate the employment of an employee for any reason provided that notice is given beforehand. In case there is some statutory duty of completing a particular period, that employee can be terminated only if he or she has a fair reason. These reasons maybe –
Capability to perform the tasks under employment.
Conduct of the employee in employment.
Redundancy of the terms of employment.
Breach of some law by the employee or
some other reason which is just, fair and reasonable.
The internal matters of a company are decided by the Articles of Association that provides for the rules and regulations for the functioning of those matters. The only requirement is that the Articles of association should be in alignment with justice and fairness and must conform to the business laws(Lewis & LLP, 2006). The articles of association lay down the procedure of holding meetings, the appointment of directors, the procedure for appointing an employee, and terminating the employment of an employee. The AoA can also lay down that no person can be voted except for under formal voting out procedure where all the employees together vote a person out by the majority of the vote. There are however very few companies that give the members the voting rights to end the employment of a fellow employee. Mostly, the termination is done by the directors. The directors can terminate the employment by-
Termination of employment takes place if the employer ends the contract of service of the employee either orally or by written statement or by way of his actions (L& E, Global, 2020). It should suggest that the employer has an intention to end the employment. The termination in a company is thus just as in any other business form or structure. A company can write its constitution or AOA stating that the employees have the same voting rights as any other.
Case Law- In the case of Attorney General of Belize v Belize Telecom Ltd,v Lord Hoffmann (2009)
The court held that the meaning of articles of association is to be construed in the same manner as any other business contract or agreement. In this case, it was decided that the director can be voted out by the shareholders at any time and does not hold the office of the director for the whole of his life.
Constructive dismissal – Constructive dismissal is thedismissal of the contract of employment by way of a material breach of employment by the employer which the employee accepts either by words or by way of conduct. Constructive dismissal need not be an unfair dismissal rather it is to be seen whether the reason behind the dismissal was just or not and whether the dismissal was done ina reasonable manner (STA Law Firm, 2019).
a). Capability – Capability can be defined as the skill, aptitude, level of knowledge to complete a particular work. It may be a mental quality or may be based on some qualifications which can be assessed by way of a professional degree. If an employee's services are terminated because of the lack of capability then that means that the employee does not have the requisite set skills to perform their duty. It is different from not doing one's work voluntarily.The employer here must show that he came to know about the lack of capability of the employee after reasonable inquiry.
b). Conduct- Another good reason for termination of employment given by the employer can be misconduct. Conduct has nothing to do with capability. An employer may dismiss an employee even if he is very efficient at his work (Clark & Mc Grath,2021). Misconduct may be by way of dishonesty, mistreatment of other employees, not being punctual, and not performing one's work as per one's capability. The employer needs to prove that the employee's services were terminated because of some misconduct for which previous warnings were given or that the misconduct was of such a nature, that carrying of the employment would result in a risk to the employer, either moral or monetary.
c). Contravention of a law- When an employee is found guilty of criminal conduct or is otherwise barred from law to be employed. E.g., the termination of driver's services because his license got canceled or because the employee was found guilty of fraud or sexual harassment, etc.
d). Some other reason- An employer may terminate the employment of the employee on any other grounds where the employee's conduct cannot be put under any of the above-given reasons. These reasons may be commercial or otherwise. For e.g., the employees of a particular organisation or company are not able to work together anymore because of a lack of amiability and co-operation amongst employees(STA Law Firm, 2019).
Applying these common law principles, business law principles, etc. we can say that Gemma can terminate Chiranjeet on any of the grounds mentioned above if the articles of association provide that the employees or members do not have any voting right to exterminate a co-worker. Gemma being the only director of the company need not hold a meeting because she does not have other directors with whom she can hold a discussion. So, it is incumbent that Gemma proves that Chiranjeet is either incapable to perform his duties or has committed some misconduct, or has contravened some law or any other specific reason other than the ones mentioned above.
In this scenario, Chiranjeet can be terminated by Gemma on the grounds of misconduct as Chiranjeet was not performing his duties properly and was mistreating other employees.
It can be concluded that in a company generally, the directors have the power to terminate the employment as per the procedure laid down in the articles of association or the constitution of the company. No specific provision of the Company's Act, 2006 provides for the procedure of termination of employees, and Gemma is the sole director who can terminate the services of Chiranjeet as per her discretion based on some reasonable ground mentioned above unless there is a contract to the contrary or contrary rules provided in the Articles of association or constitution of the company.
Rule- When a company enters into a contract with another company, it does so based on some pre-conceived understanding regarding the terms of the contract i.e., consensus ad idem- a meeting of the two minds. The company is just like any other business structure except for the fact that it has a separate legal personality than its members thus limiting the liability of the people who constitute the company which distinguishes it from other business structures like the partnership, sole proprietorship, etc. Just as two people get into the contract in similar way companies get into contracts (Latham & Watkins, n.d.). Memorandum of association helps the company to set out its goals and objectives and present the same to the outside world.
In case of conflict between two companies in the course of business, there are a few options available. The three main options available are-
1). Litigation- Litigation is the most efficient, detailed, and long process to determine an issue or issues arising out of a dispute between two people or businesses. Although not preferred as much as other dispute resolving options, this is the most decisive form of solving disputes. The right to solve disputes by way of litigation is a right derived from the constitution. Generally, the contract provides the name of the court which would have jurisdiction in case any dispute arises. However, if no such term is present in the contract, then the law provides which court has jurisdiction in such a case (Nicola Laver, n.d.). Generally, it is the court nearest to the defendant but in some special circumstances, it may be some other jurisdiction as well.
Both the disputing parties are residing in the same country, speak the same language, and share the same legal background.
The cost of the claim should not be too high then only litigation serves the purpose.
The issue involves is such that more than speedy justice the aptness of justice is the moot point in question(Howden, 2019).
The businesses should not be too big and the claims of the businesses from each other are not too high.
The nature of the business is not peculiar to the legal structure but is a common one.
2).Arbitration- Litigation is a right given by the constitution. As against under an arbitration the whole concept of the right to sue is given by the parties themselves. It is the parties to the contract who decide that a dispute would be decided by way of arbitration. Subjecting the dispute to arbitration is the best option if:
Either of the parties resides outside the country because when a party is from a different country, the cultural and legal background of the person would be different and litigation would put that person at a disadvantage. Therefore, arbitration gives some discretion to the other party to put the matter before a party or tribunal which is acceptable to the party.
It’s important that the proceedings are allowed and that the evidence could be submitted in the English language (Williams et al, 2020).
Parties want to keep information about the dispute confidential and do not want to drag the issue to the court of law where anyone has access to the proceedings.
Parties are interested in a fast resolution of the matter.
The dispute settlement body is expected to have a good understanding of economic relationships and the bigger picture.
The readiness of parties and the peculiarity of the matter of dispute would determine whether arbitration is a suitable form of dispute resolving or not.
3). Mediation- Mediation is another way of dispute resolution. Its main features are that it provides flexibility, confidentiality, and voluntariness for the parties. Mediation is a process of discussion between those parties to the dispute which is started by a neutral party. The appointed mediator does not give any judgment. The advantage of mediation over other types of dispute resolution is that instead of imposing any decision on the parties, the mediator conducts a discussion to understand the interests of the parties underlying their claims (ACAS, n.d.). The decision is voluntary, sustainable, and non-binding. Just like arbitration, mediation is a less expensive option than litigation.
Application- Applying these rules of lawto the present scenario, we can say that Gemma may choose either arbitration or mediation or litigation depending upon the country of the defendant company as well as the privacy level that Gemma wants to have in the proceedings. But, the choice of dispute resolution process does not depend only on Gemma's convenience but should be a result of the mutual understanding of both the parties. This would involve seeking consent from the Clean Machine Limited or Gemma may choose a particular jurisdiction for litigation or arbitration or mediation as a means of dispute resolution if the same is provided in any clause of the contract between the two companies. If the Clean Machine Limited does not consent to the arbitration and mediation as a means of solving the dispute, then Gemma always has the option of litigation for which she needs no consent of the Clean Machine Ltd.
Conclusion– Thus it can be concluded that there are many types of dispute resolution mechanisms of which Gemma may choose anyone dependingon the consent given by the Clean Machine Limited or any clause stating any particular dispute resolution should be adopted. Moreover, if there is no consensus on the dispute resolution between the two companies, then Gemma has a constitutional right to go for litigation in the court of concerned jurisdiction.
1. ACAS. (n.d.). Mediation at work. Retrieved from: https://www.acas.org.uk/mediation. 2. Attorney General of Belize v Belize Telecom Ltd,v Lord Hoffmann(2009). UKPC 10.
3. Clark, B.& McGrath, L. (2021). Employment and employee benefit in the UK: An overview. Retrieved from: https://uk.practicallaw.thomsonreuters.com/7-503-4973?transitionType=Default&contextData=(sc.Default)&firstPage=true.
4. Howden (2019). The UK Litigation process: An overview. Retrieved from: https://www.howdengroup.com/uk-en/uk-litigation-process-overview.
5. L& E Global (2019). Termination of Employment Contracts in United Kingdom. Retrieved from: https://knowledge.leglobal.org/termination-of-employment-contracts-in-united-kingdom/.
6. Latham, M.& Watkins, L. (n.d.). Dispute resolution in UK (England and Wales). Retrieved from: https://www.lexology.com/library/detail.aspx?g=ad7cb85a-b3e2-49a7-98fb-ef5cfdc04d13.
7. Nicola Laver (n.d.). Alternative Disputes Resolution Methods. Retrieved from: https://www.inbrief.co.uk/preparing-for-trial/alternative-dispute-resolution-methods/.
8. STA Law Firm (2019). Redundancy of Employment: English Law. Retrieved from: https://www.mondaq.com/redundancylayoff/856972/redundancy-of-employment-english-law.
9. The Company’s Act, 2006 (Cth). s.155 (U.K).
10. The Company’s Act, 2006 (Cth).s. 171- 177 (U.K.).
11. The Company’s Act, 2006(Cth).s. 186. (U.K.).
12. Williams, J., Lal, H., &Hornshaw, R. (2020). Arbitration procedures and practise in the UK: An overview. Retrieved from: https://uk.practicallaw.thomsonreuters.com/4-502-1378?transitionType=Default&contextData=(sc.Default).
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