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COMPANY LAW 2

TUTORIAL
Most common law jurisdictions divide the corporate constitution into two separate
documents:
The Memorandum of Association (in some countries referred to as the
Articles of Incorporation) is the primary document, and will generally
regulate the company's activities with the outside world, such as the
company's objects and powers.
The Articles of Association (in some countries referred to as the b!la"s)
is the secondary document, and will generally regulate the company's
internal affairs and management, such as procedures for board meetings,
dividend entitlements etc.
corporation or body corporate is a legal person created and recognised by
the law. !n this respect it is an artificial legal person as opposed to individuals who are
"nown as natural persons.
W#at are conse$uences of treatin% t#e compan as a separate le%al entit&
The effect of incorporation is set out in Section 16 (5) of the Companies Act
1965' #n and from the date of incorporation specified in the certificate of
incorporation, the subscribers to the company's memorandum, together with any other
people who from time to time become members of the company, are a body corporate.
That body corporate is capable of exercising all the functions of an incorporated
company it can sue and be sued! has perpetual (unending) succession and a
common seal and has po"er to hold land# $iability on the part of the members to
contribute to the assets of the company in the event of its being wound up is as
provided by the Companies Act.
DIRECTOR'S DUTIES
%enerally, the duties of the directors will be divided into & major categories,
a' (tatutor dut
'hat is stated by law or imposed by law.
'hat (ompanies ct )*+, says-
ny breach of duty action will be ta"en by .egistrar of
(ompany (((M).
/ection )0) 1 2isclosure to the 3oard of 2irector (3#2)
/ection )0& 1 2ue diligence
)
/ection )00 1 4inancial assistant
/ection )0, 1 2isclosure must be in writing
b' Common la" dut'
)iduciar dut
o 2uty to act bona fide in the interest of the company as a
whole.
o 2uty to act or e5ercise power fort proper purpose
o (onflict of interest 6no profit rule 7 8o conflict rule9
(*ill+ Care and ,ili%ence
ny breach of duty action will be ta"en by the company
itself.
!n most jurisdictions, directors owe strict duties of good faith and loyalty, as well as
duties of care and s"ill, to safeguard the interests of the company and the members.
Loalt - %ood fait# : .etain discretion
: void conflict of interest
o 8o profit rule
o 8o conflict rule
: ct in good faith;bona fide
: ct in proper purpose
Care - dili%ence : .easonable care 7 diligence
: The standard of s*ill and care that a director
owes is usually described as ac<uiring and
maintaining sufficient "nowledge and understanding
of the company's business to enable him to properly
discharge his duties.
: 2irectors also owe strict duties not to permit
any conflict of interest or conflict with their duty to
act in the best interests of the company. The rule is so
strictly enforced that, even where the conflict of
interest or conflict of duty is purely hypothetical, the
directors can be forced to disgorge all personal gains
arising from it.
Rele.ant sections under t#e Companies Act+ /012'
/ection /3/+ /34+ /32 1 2isclosure to the 3oard of
2irector (3#2)
/ection /33+ /33A 1 =rohibition of loan
/ection /32A+ /325+ /32627 1 2uty not to misuse info of the
company
&
/ection /32 C+ /32 8 1 /ubstantial property transaction
/ection /32 6/7 1 %ood faith > best interest >
proper purpose
/ection 393+ 394 1 =roper account > fraudulent
transaction
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