Corporate Law & Compliance

Welcome to Corporate Law & Compliance. Follow Programme Reader 02 — Core Concepts & Vocabulary, then practise in the learning system. Sign in and use the study header to open your authorised course. Select this published lesson. Start Course Tutor with Auto audio on: it teaches continuously, answers a typed question, then resumes. The organs are the board of directors and the members in general meeting, and the allocation of power between them is fundamental. A client says: "We are a private limited company. Our two directors want to sell the factory and use the money to start a different business. Can they just do it?" Work through the vocabulary. First, whose decision is it? The board manages the business, so the starting assumption is that the board decides. But the Act carves out certain decisions and reserves them to the members, and the sale, lease or other disposal of the whole or substantially the whole of the undertaking of the company is one of them, requiring the consent of the members by special resolution. So the answer turns on whether the factory is substantially the whole of the undertaking, which is a question of fact about the company's business, not a question the directors may decide for themselves. Second, the objects. The proposed new business must fall within the company's objects as stated in its memorandum. If it does not, the memorandum must first be altered in the manner the Act prescribes, which itself requires a special resolution and a filing. Third, the interest question. Ask whether either director, or a relative, has any interest in the purchaser. If so, the transaction may be a related party transaction, engaging separate approval and disclosure requirements, and the interested director must disclose the interest and will ordinarily not participate in the board's consideration of it. Fourth, the record. Whatever is decided must be minuted properly, the notice of the general meeting must set out the explanatory statement the Act requires for special business, and the resolutions must be filed where the Act requires filing. Fifth, the vocabulary of risk. If the directors proceed without the members' consent where it was required, the transaction is exposed and the directors face the consequences attaching to an officer in default, quite apart from any claim by an aggrieved member alleging oppression or mismanagement. The advice, then, is not yes or no. It is: determine whether the factory is substantially the whole of the undertaking; if so, obtain a special resolution; check the objects and alter them if necessary; test for related party involvement; and document everything contemporaneously. Ask Course Tutor to explain this step: Second, the objects. The proposed new business must fall within the company's objects as stated in its memorandum. Say what you tried. Pause and try this source task. Why does it matter whether the factory is substantially the whole of the undertaking? The source answer is: Because the disposal of the whole or substantially the whole of a company's undertaking requires the consent of the members by special resolution, whereas an ordinary disposal of an asset falls within the board's management power. The classification therefore decides which organ must act. Compare your method and result, correct an error, then continue. Use Stop to end Course Tutor.