Research Paper Help on Company Law

Company Law

Question one

Subrogation is the insurer’s right to assume the privileges of the insured party. It works on the premise that when the insurer makes payments for obligations owed by the insured, the insurer is subrogated to any claims or remedies exercisable by the insured against the primarily responsible party. While subrogation fundamentally affects the right of the insured to lay any claims for payments by the tortfeasor, the tortfeasor may be affected. If the insurer indemnifies the insured for damages in full, the insurer may then decide to institute proceedings against the tortfeasor himself (Joseph D. Jean 1). Insurance companies attempt to reduce the amount they pay out for damages by inserting a ‘waiver of subrogation’ clause in the settlement agreement. If the wronged party signs the settlement, the other insurance party may refuse to pay monies to the insurer of the wronged party. Pro-rata clauses that direct that the insurance company will pay claims equal to any other policy’s coverage for may also be used to reduce liability. An excess clause that articulates that the insurance company will not pay until the limits on the other policy are exhausted is also used.

Question two

Bonding is a contractual agreement that protects the consumer and guarantees that the contracted company will meet all its contractual and legal obligations. It is a requirement for most businesses before being licensed to operate. The bond is used to compensate anyone who suffers loss or damage as a result of the contractor failing to meet his contractual agreements. Bonding is different from insurance coverage in the following ways. First, insurance is between two parties, the insured and the insured. A bond is between three people, the insured, insurer, and the obligee. While the insurance shelters the insured, the bond safeguards the person who obliges. Third, the premiums paid on insurance are intended to cover potential losses for the insured while in bonds, the premiums are designed to guarantee the fulfillment of the insured’s contractual obligations(Stone 1). Lastly, when the claims are paid, in insurance coverage the insurer does not expect to be repaid by the insured. With bonds, the insurer expects indemnity from the insured.

Question three

A bailment is a non-ownership transfer of property. Bailments are created in many ways. Most arise from an express agreement between the parties involved. In these mutual benefit bailment, both sides agree to institute a bailment agreement.  Bailments implied in fact are founded on the action of the parties. The parties do not agree to the bailment, but their actions and behavior are interpreted to imply that a bailment agreement was in place. Bailments implied by law are created in law so that there can be fair play and justice for one or both parties. Bailments by necessity arise when one party obtains custody of the other party’s property by error. A bailment of lost property arises when one party loses an item that is recovered by another party.

Bailees have a duty of care. In most cases, especially for bailments that arise without agreement, the standard of care is that of reasonable care. The duties of the bailee are to take reasonable care of the bailed goods and not to make unauthorized use of those goods. They also are required to return the goods to the bailor together with any accreditation (increase to the goods bailed)(Bandil 1). In a gratuitous bailment, the bailee is obligated to exhibit a greater degree of care for the goods. For bailments for the sole benefit of the bailee, the onus is way higher. The bailee also has to use the products only in the pre-agreed manner.

A bailee, common carrier, and the innkeeper are all related in the sense that they owe a duty of care to the clients. The bailee is in possession of another party’s goods and must exercise care in the use and storage of those goods. Common carriers are licensed to transport people or goods and are responsible for any loss occurring during transportation. Innkeepers, on the other hand, must safeguard their clients from harms by other guests or attacks and negligent acts of inn employees.

Question four

The memorandum of association, articles of incorporation and articles of association are important documents for any corporation. The memorandum of association defines the scope, powers and objects of the enterprise(Paul L. Davies QC 220). It is important when transacting since it represents the business that the company can pursue. Any transactions outside those outlined are deemed to be outside the company’s scope and are unenforceable. It thus protects the rights of shareholders and customers. The objects clause is used to reassure investors that their funds will only be used for the intended purposes. Directors and other enterprise members also use it as a point of reference when there is a conflict as to the company’s scope. Since it sets the objects, liability, capital and subscriptions of the enterprise, it is important for stakeholders when making decisions about the company. The articles of association (articles of incorporation in some jurisdictions) set out the rules that govern the firm’s internal dealings. They outline issues such as the allotment of shares and capital, company borrowing powers and the procedures to be adopted in meetings. They also state the rules on the appointment, voting, and removal of directors. They are essential when handling any internal conflicts that may arise. The AOA serves as a contract between members and management. They outline how the company will be governed, profits appropriated and the management of accounts and audit. Any deviation from the rules set out has consequences and thus the AOA help in ensuring that the company is run properly.

Question five

Directors perform myriad important duties in the organization. In the performance of those roles, they owe some duties to the corporation and other stakeholders. They have fiduciary duties that are divided into two divisions; the burden of care, and that of loyalty. The onus of care requires directors to operate with a specific level of competency and skill. The onus of loyalty requires directors to perform their duties honestly, in good faith, and in the firm’s best interests. The onus is personal and cannot be delegated(Liu 1). In addition to the fiduciary duties, directors also have other duties outlined in the law. They are mandated to act within the powers accorded to them in the company constitution. The powers should also be used specifically for the purposes for which they were conferred. Directors are also required to promote the firm’s success for the benefit of stakeholders. While doing so, they should exercise autonomous judgment and reasonable skill, care and diligence. They should also avoid any conflict of interest and reject any benefits from third parties. In any suggested arrangement or transaction, they are also obliged to declare their interest. Directors are also obliged to provide shareholders with sufficient information to make decisions on. As the trustees of company property and money, they are required not to misapply the funds or property.

The duties of directors to the corporation are also expected from the senior management and other business agents. When directors and other agents are in breach of their fiduciary duties, a number of remedies are available. The first is the accounting of profits. In this, the fiduciaries are ordered to hand over all the profits they made over a specified period. Another remedy is equitable compensation whereby the damages are based on the loss arising to the principal. A constructive trust is another remedy whereby courts decree that any gains made out of a breach of the fiduciary duty be held in trust for the principal. Any contract entered into that might lead to a breach of duty may also be rescinded. If the company property that was misappropriated can be traced, the remedy available to the company is restoration of that property. The director who defaulted on his fiduciary duties can also be dismissed summarily. The courts can also serve an injunction on the director and direct that he declares his (her) wealth and its source.

Question six

A shareholder’s agreement is a covenant between the shareholders of a company supplementing or superseding the constitutional documents. The document is signed when there are few shareholders in the enterprise. The agreement is made because of an assortment of reasons. First, the document is private and confidential, unlike the constitutional documents that are open to public scrutiny. In many countries, the provision to settle disputes by arbitration can only be incorporated in shareholder agreements. The covenant also offers greater flexibility in terms of the amendment.

Closely held corporations are firms where more than 50% of shareholding is controlled directly or indirectly by less than five individuals during any period in the last half of the tax year. The enterprise should not be a personal services corporation. Closely held corporations are subject to additional limitations in the tax treatment of items. The corporate veil can be lifted under statutory provisions or judicial interpretation. Under legislation, the veil is lifted if the number of members falls below the statutory minimum. It is also lifted when establishing the relationship between the holding and subsidiary company. If a situation arises where there is a need to investigate business ownership, the courts may decide to lift the veil. The veil will also be lifted when investigating company affairs (Michoň 22). Under judicial interpretation, it is done for the protection of revenue, prevention of fraud or improper conduct and the determination of the enemy character of a firm.

Question seven

Broadly held corporations are companies in which the number of shareholders is substantially large. The public and the government are interested in the business and usually, the stocks of the corporation are traded publicly. Not less than 50% of the voting power is allotted to either the government or a corporation established by a state, central or provincial Act. Broadly held corporations are eligible for a varied range of tax concessions.

Shareholders have a number of rights by law. They have a right to attend general meetings and vote in the same. They also have a right to share in the company’s profits through dividends. On a corporation’s winding up, they are entitled to the remainder after all creditors have been paid. They also have a right to a copy of the firm’s annual accounts and can sue the company to make it act lawfully.

Derivative action is a remedy that permits complainants or shareholders to advance an action on behalf of the firm when the action refuses to institute the action itself. It was the rule in Foss V. Harbottle. The remedy is intended on rectifying wrongs done against the company when management, for whatever reason, decides not to take action(Champlain 1). The oppression remedy is designed to protect minority shareholders from oppression by majority shareholders. Where a court deems a certain group deems some actions oppressive to a certain group of shareholders, it may take remedial action that ensures equity for all parties. Dissent rights, on the other hand, entail the judge disagreeing with the majority opinion and thus instructing the majority to go with the minority opinion.

Question eight

There are many differences between a sole proprietorship, a partnership, and a corporation. While a sole proprietorship has only one proprietor, a partnership has two or more individuals who share management responsibility. Corporations, on the other hand, have a structure in which the owners are different from management. Sole proprietorships have no distinction between the natural owner and the business. In partnerships, the partners manage the business but may appoint only one of them or a few to run the business. Corporations have a distinct difference between the management and owners. Sole proprietorships are the easiest to form. They have fewer formalities and paperwork than corporations and partnerships. The owner also enjoys complete control and easy tax preparation as the business is not taxed separately. Partnerships require considerably more paperwork. The partners have to covenant on how business will be run, profits appropriated and the liability of each partner among other things. With corporations, the amount of paperwork increases. The Companies Act requires a Memorandum of Association, Articles of Association.  The corporations also have to be audited, and their books are open to public scrutiny. Corporations also have more access to funds and enjoy greater tax benefits than sole proprietorships and partnerships.

In sole proprietorships, debt, tax, and legal liability are all borne by or belong to the proprietor since there is no separate legal entity. The owner also has access to all the profits and bears all the losses his firm makes. With partnerships, the partners take the risk for any loss or liability arising from the business. Profits, losses, and assets are appropriated according to the capital contribution or any other method that the partners agree on(Harrison 1). With corporations, the liability of owners is limited to their capital contribution. Profits, losses, and assets are also distributed according to the percentage contribution of each to the enterprise.

Question nine

Shares are divided into diverse classes. Ordinary shares carry no preferred rights and holders of these types of stocks have only one right per share to vote in general meetings. In the case of winding up, these shareholders come last after all debts have been paid. The ordinary shares may also be divided into sub-categories. Non-voting shares hold no right to vote or participate in general meetings and are usually issued to firm employees. They are issued so that a part of employee remuneration is done in the form of dividends. Redeemable shares are issued on the terms that the company can buy them back from holders at a future date. The redemption date is either fixed, done at the directors’ discretion or the enterprise’s’ option. Some statutory limitations on how shares can be redeemed include that redemption is only out of accrued earnings or the proceeds of a fresh issue. Preference shares have a preferential right to a fixed amount of dividends. They are often non-voting and may be redeemable. In the case of the company winding up, they also have priority over ordinary shares (Jackson 32). Deferred ordinary shares are those that receive no dividends until all the other classes have received a minimum dividend. Management shares are usually given to the original company owners and carry extra voting rights. Other classes of shares may be created at the company discretion.

Debentures, bonds, and shares are used in financing a company. Debentures are unsecured loans where the company offers no collateral. However, the interest rate is higher than that for bonds. Bonds, on the other hand, are loans in which the corporationprovides collateral. The interest rate is lower than for debentures and they are more secure than debentures (rahuleink 1). Shares are stocks sold to investors in exchange for ownership of the company and the right to partake in the profits of the enterprise. They also afford the investors capital gains when sold later.

Question ten

Joint tenancies are fundamentally different from tenants in common. Joint tenancies have a unity of title, possession, time and interest. What this means is that joint tenants hold the property under one title, and the tenancy starts and ends at the same time. Also, the Joint tenants have equal rights and interests to the property. With tenancies in common, only the unity of possession exists. All owners have equal rights to property possession, but the percentages of the particular proportion owned vary. A tenancy in common does not carry the right of survivorship as in Joint tenancies. It is important to make a distinction between the two tenancies. In the event of death, the interest in the property of the deceased passes on to the estate in the event of tenancy in common and to the other joint owners in the case of joint tenancy. In order to change from a joint tenancy to a tenancy in common, one needs to draft a notice of severance and serve it to the other party together with a ‘without prejudice’ letter. The tenancy in common takes effect upon serving the notice. The Land Registry is then notified in writing of the same.

Question eleven

There are different types of property ownership. A fee simple is divided into two, fee simple absolute and fee simple defeasible. A fee simple absolute affords the owner the greatest possible protection since only that individual, and his or her heirs have rights, privileges and power over that real property. In a fee simple defeasible, the interest can revert to the guarantor upon the occurrence or non-occurrence of a specified event. A life estate affords the holder the rights to possess and use the land only for the duration of his or her life (Abts 1). In a leasehold interest, the lessee is granted an exclusive right to use and possess the real property for a specified period in return for some consideration to the lessor. It is the same for a tenancy where the tenant pays rent for the occupation and use of the property. An easement, on the other hand, grants a non-possessory right to use another’s property in a pre-arranged or implied manner.

Question twelve

A mortgage is a debt instrument used to make large real estate purchases without paying the entire value upfront. The borrower pays the loan and interest over a period of years until he (she) eventually owns the property. Upon the full payment of the loan, the lien against the property becomes void. An equity of redemption is a borrower’s right to redeem their property upon the discharge of the mortgage liability, in accordance with the statutory provisions. Foreclosure, on the other hand, is an attempt by the lender to recover any unpaid interests and loan amount from a defaulting borrower by forcing the sale of the asset offered as collateral. If the mortgage is still delinquent in three to six months and the defaulter makes no attempt at paying the missed payments, the lender may begin to foreclose. The power of sale is an inclusion in the initial loan agreement authorizing the lender to sell the collateral property if the borrower defaults on payments. The lender will do so without seeking a court authorization to advertize and sell the property.

The registration of mortgages is important because any registered mortgage has priority over any unregistered mortgage deed, even if the unregistered mortgage deed was executed prior to or subsequent to the registered mortgage(Kumar 1). Lien priority is such that the first mortgage takes precedence over the second lien that subsequently has priority over the third lien. It is important in determining how foreclosure funds are distributed. The first mortgage has to be paid first, and then the second and finally the third. If the foreclosure funds are enough for the first mortgage only, the subsequent mortgages get nothing.

Case Study one

Mary acts in a way that is not mutually beneficial to the other partners. She enters into a contract with MDG in her name (and not the partnership name) to promote the distribution and computer fair in the city and at the college. She does not inform Albert and Victoria about the fair and even tries to keep it a secret from them. She, however, suffers loss. In assessing the legal position of the partners, the ruling in Construction Engineering (Aust) Pty Ltd v. Hexyl Pty Ltd (1985). For Albert and Victoria to be liable, four conditions have to be satisfied. The first is that the transaction has to be entered into by a partner. Mary was a partner; thus this condition is satisfied. Second, the transaction has to be within the scope of business carried out by the firm. Mary was organizing a computer fair that was the ordinary business of the partnership. Third, the transaction must be effected in the usual way. Mary transacted the business in the usual manner of the firm. The fourth requirement is that the other party to the transaction must not know of the partner’s lack of authority to act. Mary entered into the partnership with MDG in her name. At no point did she associate herself with the company. Applying the ruling in the case above, Albert and Victoria can escape liability by showing that MDG did not know or believe that Mary was a partner. Mary is thus liable for all the losses.

If the three students had put on the computer fair, they would have all been personally liable. Even though Victoria is a limited partner, she does not take a passive role in the running of the business. If the afflicted parties can prove that Victoria acted in a way that led them to believe that she was a general partner, she can be held personally liable.

Case Study two

Albert and Blair have three options available to them. First, they can ask Edward to use his vast personal resources to grow the company. They can also ask Charles to use the influence he has in the industry to secure some funding for them. They can also threaten to leave the company if the other three do not offer guarantees to secure extra funding. Albert and Blair can also strive to acquire the information that Darwin and Edward have and then use it to threaten them into offering additional funding, or they inform the relevant authorities. The best course of action would be requesting Edward to use his personal resources to aid in company growth. Edward has considerable personal resources and still wants the company to grow.

Edward is faced with a myriad issues. First, if he uses his resources to help the business grow, he might stand to benefit, especially if his percentage interest in the enterprise increases and the “new opportunity” proves profitable. If Darwin fails to secure the new opportunity though, he might stand to lose. If he uses the available information, it would amount to insider trading and immerse him in legal problems if he were found out. Edward should thus remain calm and remain a passive partner in the business.

If Albert and Blair were to leave the company to operate separately, the company would be left with no management. Since the other partners do not want to take up an active role, the partnership would have to be dissolved. If the two left to join the Ethical Research Company, they would find out the scheme that Darwin was orchestrating. Furthermore, they would be in a legal quagmire since there move to the Ethical Research Company would be considered insider trading owing to their relationship with Darwin, who has already proven to be unethical in his dealings.

Case Study three

Sarah may be liable to pay the cost of the items since she was the one who brought the small sparkler. Jerome did not know that they were flammable and in his surprise on putting the sparkler into the vase and catching fire burnt the house down. Sarah may be deemed as the cause of the fire and Jerome’s insurance company may use this to eliminate their liability. Sam, the part owner of the house, is also liable. Since the house is registered in the corporation’s name, and he is part owner of the company, he is liable to pay part of the mortgage on the house. Jerome can sue Sarah for causing the fire and thus eliminate the liability accruing to him. Jerome can also sue his insurance company to cover the cost of the fire damage. The mortgage company will also sue him for the amounts, and he has no money. Since Jerome misrepresented that the house belonged to the enterprise, but the insurance policy is in his name, the insurance company may refuse to pay claiming that Jerome’s house was not burnt. If the insurance company does pay, they may subrogate the funds arising from the suit against Sarah to recover their damage money.

If the insurance company did pay $25,000 to Jerome to settle but still denied the claim, the answer would still be the same. The reason for settling is to prevent the rigorous court case. Jerome should, however, proceed with his court case as this would enable him be able to pay for the damages up to the entire amount of his cover.6

Case Study four

Before the Municipal Tax Sales Act came into play, Jean Strain owns Island 99D(cottage island) while Zimmer owns Island 99B(Rock Island). Even though both parties are aware that they own the opposing documents, land registry records and the survey certificate depict Zimmer as owning Rock Island and Jean Strain as owning Cottage Island.

The situation does not change with the enactment of the Municipal Tax Sales Act. Jean Strain is the owner of Cottage Island for which there are tax arrears. When the tax deed or notice of vesting for the tax arrears was being registered, it was registered in the name of Jean Strain, the owner of Cottage Island for which there are accrued tax arrears. Zimmer is still the owner of Rock Island that is not affected by the provisions of the Municipal Tax Sales Act since there are no outstanding tax arrears on Rock Island.

Zimmer has no remedy against Ellesman since Ellesman is the legal owner of Cottage Island. Zimmer has the option of moving into and occupying Rock Island since there is no proof of fraud in the sale. Zimmer may also sue Dagmars Leparskis for selling him the wrong island, but Dagmars will show that he had no idea of the misrepresentation. Zimmer may apply for a refund of the money that he used to develop the land. The opposition will, however, argue that if only he had obtained a survey certificate, he would have been aware of the error. In my opinion, Zimmer has no legal recourse.

Works Cited

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