Company law revision question and answer

Abel and Boaz have been carrying out business as a partnership. They have both been employed on full time basis in the business and have shared profits and losses equally. Abel wished to bring his son David into the business and Boaz accepts the proposal.

They wish to convert the partnership into a private limited company, ABD Company Ltd., in which Abel and Boaz will each hold 40 percent of the shares and David will hold 20 per cent. All the three shareholders will be directors of the new private company.

(a) Advise the three shareholders of ABD Company Ltd. on the documents which they are required to submit to the registrar of companies for approval in connection with the formation of the private company.

(b) After ABD Company Ltd. was formed, there arose a disagreement between Boaz and David regarding the day-to-day management of the business. Abel and David decided to remove Boaz from the board of directors.

Explain the procedure that Abel and David should follow to effect the removal of Boaz as a director of the company.

(c) Discuss whether Boaz has grounds for petitioning for the compulsory winding up of the company.
Answer
(a) Documentation
• Memorandum of Association – this is the external constitution of the company.
• Articles of Association – this is the internal constitution of the company.
• Statement of Nominal Capital – specifies the capital with which the company is to be registered.
• Declaration of Compliance – this is a requirement of Section 17(2) of the Act.
• List of directors and their particulars – names, postal address, date of birth, other directorships.
• Consent to act as director which must be written.
• Notice of location of registered office – city or town, name of building, plot number etc.

(b) Removal of Boaz for office
• Abel and David must give ABD Company Limited a special notice of the intended resolution i.e. to remove Boaz from office.
• On receipt of the notice, ABD Co. Ltd. must send a copy of the notice to Boaz.

• Boaz is entitled to make written representations as his defence and may request the company to notify its members that he has done so.
• Abel and David must instigate the convention of an extra ordinary general meeting of the ABD Co. Ltd to determine the issue.
• The removal of Boaz from the office of director will take effect when Abel and David pass an ordinary resolution to that effect.

(c) The facts of this case encapsulates a situation wherethe majority shareholders hatch a duplicity to remove one of their number from the office of director. These facts raise the question whether expulsion from management is a sufficient ground for compulsory winding up. It is our submission that if the expulsion is not based on anything substantial as is the case in ABC Co. Ltd., it tends to be unfair and borders malice and is thus sufficient to warrant a winding up of the company under the just and equitable ground.
In our view, Boaz has been unfairly expelled from the management of the company and can thus petition for the compulsory winding up of the company. Our position is consistent with the decision in Re Lundie Brothers Ltd. whose facts were substantially similar and the court decreed the winding up of the company under the just and equitable ground.

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