Chap 8 Flashcards
The advantage of membership is that
The law accords certain rights to members but not to shareholders.
Conditions of membership :
A person may become a member of a company by
(I) subscribing to the memorandum of a company to be incorporated
(II) subsequently agreeing to become a member
In both cases , their names must be entered into the company’s register of members
A director is a person in charge of the management of a company . He is not necessarily a member unless he owns shares in the company & is also registered as a member.
Just to know
The articles of association of a company usually empower the directors to manage the business of the company, and accordingly , the members , acting together as a GM of the company, may not interfere with the directors’ exercise of such powers.
Just to know
Members may exercise powers of management if :
(A) the constitution or the Companies Act expressly requires them to supervise the directors in their exercise of those powers.
(B) the board of directors is incompetent , or unable to act ( eg: impossible to pass a directors’s resolution)
Member’s rights / obligations
- to have every member comply with the provisions of the constitution of the company ; this is both a right and obligation
- to restrain any illegal or ultra Vires act
- to have access to the records of the company and certain information
- to attend and vote at general meetings ( and follow decisions of the majority)
- to be treated fairly . This is both a right and an obligation.
There is no absolute right to receive dividends even if there are profits available for distribution.
There is only a right to receive a proportional share of any dividends distributed by the company from profits. If a member insists on being paid a dividend when the majority of the company wants to retain the profits , he must satisfy the court that he has been unfairly treated .
Since the constitution of a company form a contract between the members inter se ( between each other ) , every member is expected to observe and comply with them.
Every member is entitled to expect other members to observe and comply with them.
To know
A threatened breach of the memorandum or articles may be restrained by
An injunction.
Where a breach of memorandum has occurred , a court order may be sought to
Nullify it
The court would only grant remedies if it is of the view that
Substantial injustice has been or will be done by such a breach.
S392(4) (a)
Of the companies act empowers the court to validate breaches of the memorandum or articles if it thinks fit.
This is especially so when the court considers that the same result would be achieved even if there has been or would be no breach.
Eg: if a member was not allowed to vote , but the result would have been the same whichever way he voted.
Restraint of illegal or ultra Vires acts
S409A (1)
Of the companies act empowers a member to apply to the court for an order to restrain the commission of any act which contravenes any provision of the Act( most commonly used to restrain breaches of S 157 - directors statutory duties ).
If the company engages in activities which are outside of its objects , S25(2) gives the member the right to apply to the court to restrain the company from engaging in them.
Access to records and information
(1) A member has the right to inspect free of charge all the registers which a company is required under the Companies Act to maintain.
May also inspect the minutes of the GM of the company.
Entitled to copies of the minutes upon request at a charge not exceeding $1.
If the company fails to supply him , the company and every officer in default will have committed an offence.
(2) right to be informed about the financial position of the company.
For this reason , he is entitled to inspect and obtain copies of all documents relating to charges created over the company’s property and to receive a copy of the company’s past audited ( or unaudited , if the company satisfies exemption criteria ) profit and loss statement , balance sheet and the reports thereon by the auditors and directors.
However, the unaudited accounting records of the current accounting period are not accessible by him.
Attending and voting at GM -
The right of every member of a company to attend , speak and vote at the general meetings of the company is protected under the Companies Act.
To know
Attending and voting at GM -
His right to vote mah be suspended if
The article provide for the suspension on the grounds of failure to pay all calls or other sums personally payable by him in respect of shares in the company.
Attending and voting at GM -
Generally , a member may vote on any resolution as he thinks fit , even if he is personally interested in the outcome of the vote. Unlike a director , he owes no duty ( fiduciary or otherwise ) to anyone , other than himself , when he exercises his voting rights.
Need to know
Fair treatment - every member of a company expects to be treated and dealt with fairly.
Despite this exception , within every company the general principle for decision-making is majority rule.
If the majority of the members decide on a particular course of action , there is nothing which the minority can do to challenge them if the majority had exercised their rights fairly.
There is always the risk of ‘ tyranny of the majority ‘. ( the right of a member to be treated fairly becomes especially important when the directors of the company own the majority of the shares and weird majority power. )
Need to know
S216
Mainly used to protect the ‘minority’ ( or sometimes even majority ) members in closely- hoed companies if they are unfairly treated.
‘Closely- held’
Hold a large proportion of the shares even though there are many shareholders
An aggrieved member may apply to the court for relief in any of the following situations which are considered as unfair treatment :
- Oppressive conduct by directors
- Directors disregarding their interests
- Acts that are unfairly discriminatory
- acts that are prejudicial to one or more of the members of the company .
To save legal coasts and avoid multiple lawsuits , the application may be brought by one member as a representative of some of them.
Hence an action by one member under S216 , which seeks to protect the rights of other members as well , is called a representative action.
Nonetheless , successful actions under S216 are rare since the majority SH is in a very powerful position.
Entrenched clauses -
To combat against unfair treatment , the companies act has recently been amended to allow the members to insert entrenched and entrenching provisions in the memorandum or articles. Eg : stating that some difficult procedure must be compiled with before a particular article can be altered.
Need to know
Enforcing the rights of the company -
Proper plaintiff rule
Under the common law , it was decided in Foss v Harbottle (1843) that where the company was the direct victim of a tort , the members of the company had no right to commence legal action against the wrong doers in respect of that tort - even if the members would suffer ‘indirectly’ ( eg: the loss caused to the company would result in less profits being available for dividends )
On the principle of the doctrine of separate legal entity , the decision is correct.
Enforcing the rights of the company : Foss vs Harbottle
Facts : two shareholders in a company called Victoria Park Company that was formed to buy land for a pleasure park , sued the defendants , being directors and other shareholders , for taking certain actions to defraud the company , including selling land at an increased price.
Held : The board of directors was still in existence , therefore the board should call a meeting to bring the legal action. The company is a separate legal entity. The company and not the SH should be the relevant party to bring the legal action
Refer to notes pg 7 for examples where the proper plaintiff is actually the co
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