Law and Corporate Issues



Law and Corporate Issues

Answer Number 1

Introduction

Cotton Limited holds 89.5% of the shares in Satin Co Limited. The remaining shares are held by Silk and several other small investors. The Board of Satin wants the company to become a wholly owned subsidiary of Cotton Limited as they expect this will result in both taxation benefits and a saving on accounting fees and administration charges of about $230,000. Cotton Limited offers to buy the shares held by Silk and other minority members but they refuse. Arrangements are made to hold a members meeting to pass a resolution changing the constitution of Satin by inserting a new clause 53 “any member entitled to 80% or more of the issued shares may compulsorily acquire all the remaining shares”. Silk and other minority members receive written notice of the company meeting together with a proxy form and a valuation certificate stating the shares were worth $2.50 each. Although the offer is fair Silk does not want to sell her shares and wants to start legal action to prevent the proposed alteration to the constitution.

Question

Discuss whether she may succeed in her action.

Would your answer be different if the real reason for compulsorily acquiring the shares from Silk was that she discovered operating a business in competition with Satin Co and was using information gained as a member to take away some of Satin's business?

Discussion

Omission of any minorities who have shares in a company is a situation that is associated with the companies act 2006 where the minority has the right to file a case in concern of unfair business act in a corporation. This omission is known as squeeze out mechanism and can be a redemption made by the majority shareholders to have more control over a private organization and shareholder servicing costs can also be reduced in this manner.

There are certain strict limitations which forbid the majority shareholders to have an exclusive license which may be a problem for the security issues of an organization, its beneficiaries and rights of small and major shareholders.

The termination is not the lack of compensation and can receive legislation. In this matter, the minority shareholder can be the legal challengers for the exclusion.

A confrontation of this resolution is allowing under general laws of business. The minority shareholders can support inadequate transfer of authority. In this case the minorities can file an appeal to the court. Also an appeal can be made if the offer given to minority shareholders was less or not according to the requirement

The final decision can be achieved by balancing this interest and is made to prevent any of the disadvantages to the minorities. If the exclusion process is found to inappropriate during the legal proceedings then the minorities can also claim for any losses from the company.

The omission also known as squeeze-out helps the company to be free from small share holders who may affect the company's growth and performance by obstructing the business through appeals and filings to the ...