Business law case study questions Example | Topics and Well Written Essays - 2000 words

Business law questions - Case Study Example Thus under the general notion, the company is liable for its debts and not the shareholders. (Ridley 2011) The landmark decision in respect of company incorporation was of Salomon v Salomon ([1897] AC 22) where Mr. Salomon, formed a company which included his wife, five children and himself (so as to fulfill requirements of shareholders as per the Companies Act prevailing at that time). He went on to purchase the sole trading business which was operated by him albeit overvaluing the business, but that too because of his confidence in the business. The company went into liquidation and the liquidator evaluated that the company was a sham and was an agent of Salomon and conclusion was that he should be held personally liable to the debts of the company. The House of Lords reversing the decision of the Court of Appeal observed that it was reasonable if shareholders held shares merely to fulfill technical requirements and so the procedure of setting up a business could be used by any per son and if so done it would be a separate legal entity. The current Companies Act 2006 (s.7) allows a company to be formed by a single person. The next decision that was made by the House of Lords was Macaura v Northern Assurance Co. ([1925] AC 619) the court went on to say that under corporate personality assets belong to the company (Dignam et al 2012). The courts have scrutinized the concept of separate legal entity by lifting the veil of incorporation, whereby rights and liabilities of company and shareholders are treated as the same thereby removing the concept of limited liability as a result of which the shareholders are held liable for the acts of the company. This is known as lifting the veil, which is done mainly where the company is found to be a â€Å"sham† or â€Å"fraud†. The current position in respect of lifting the veil is that of Adams v Cape Industries plc where it was held that the veil would be lifted only if the company is created with the intent or purpose of fraud or where the reason was for avoidance of an existing obligation. (Dignam et al 2012) In respect of the position of McDaid Development (Ireland) Ltd and its shareholder, it is important to note that McDaid is a private limited company and has one shareholder who owns all the shares. Under the Companies Act 2006, a single person can also set up a company. The benefit that the shareholder would derive from the company is that of limited liability which means liability would be limited to the extent of unpaid shares and the shareholder would not be held accountable for the losses that have been incurred by McDaid Development (Ireland) Ltd. Q2. The Companies Act 2006 prescribes several duties on company directors. Discuss the general duties of directors according to the law. Analyze and discuss the duties breached by Peter McDaid as the managing director of McDaid Developments (Ireland) Ltd. In accordance with the provisions of section 171 of the Companies Act 2006, t he directors must act within powers and to exercise them for a proper purpose. If a director breaches the same such breach is generally considered to be a breach of the director’s duty to act in good faith. Difficulties have arisen when the directors act in good faith but not for a proper purpose. In the decision of the Privy Council in Howard Smith Ltd. v.