Business Law for Managers: Analyzing Legal Duties and Breaches

This report provides an in-depth analysis of business law, focusing on the legal responsibilities of directors within a company, specifically within the context of a case study involving a director named Linda. The report explores the key features of a private limited company, relevant UK company laws, and the specific duties of a director as outlined in the Companies Act 2006. It examines potential breaches of these duties, such as conflicts of interest and actions detrimental to the company, including establishing a competing business and entering into contracts that undermine the company's interests. The report details the various liabilities directors face, including those related to ultra vires acts, breach of trust, and fraud, as well as criminal liabilities. It also explores the potential consequences of breaching legal duties, including civil actions and disqualification. The analysis includes references to relevant case law and legislation to support the conclusions drawn regarding Linda's actions and their potential legal ramifications. The report concludes by summarizing the key findings regarding the director's duties, breaches, and liabilities.

Business Law for Managers

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Features Of private Limited company.........................................................................................2
Relevant laws in the area of Company law .................................................................................2
Duties of director under companies Act......................................................................................3
Liabilities of directors ...............................................................................................................4
Consequences of breach of legal duties by director of company.................................................5
Remedies available with company who has suffered losses due to the breach of legal duties by
director.........................................................................................................................................7
CONCLUSION................................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Business law is considered to be as legislation which govern as well as governs the
activities conducted by various companies. It is very much important for managers in an
organization to develop the understanding about these norms as well as update themselves with
the latest amendments, as this strategy will assist them in eliminating the legal obligation. The
study on business law is very much crucial as it helps manager in identifying the various legal
issues and also support management in making suitable decisions.
The present report have focus on analyzing whether the person in given case study that is
Linda has conducted breach of her legal duties. Study also emphasizes on determining the
consequences of breach of contract. It will also highlight the key features of private limited
companies.
MAIN BODY
Business law is the norm in United Kingdom which is formed by the government in the
nation for governing as well as regulating commercial practices. It also regulates the business
contracts, hiring practices, sales of consumer goods, manufacturing etc. Business legislation is
considered to structure of laws which governs trade. It is mainly considered to be branch of civil
legislation. Business law helps in dealing with various issues of private as well as public law. In
addition to this business law regulates the way business operations are being conducted (Carby-
Hall, 2017).
As per the given case study., Linda is a director of ARA company. She has various duties
towards an organization. When Linda has returned to work after recovering from illness she
found excluded from decision making. It has been analyses from the given case scenario that
Linda has secretly started new business in order to give direct competition to ARA ltd which is
company in which she has been working. Establishing new business without given notice is
considered to be as illegal act (Hannigan, 2018. ). Yes, Linda has breach the employment contract
when she has signed in when a lady was being appointed at post of director in the company. In
addition to this, Linda has also entered into a contract of one Lakh pound with Bat ltd which an
existing customer of ARA Ltd., by conducting this act also she has breach of her legal duties.
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Features Of private Limited company
The important features of private limited company is that the company is established as
well as managed by few people. An organization can not sell its share to public. Company law
restricts Private limited companies from it increasing its share. As per company law, private
limited organization can keep as well as issue maximum 50 share to is shareholders. If the
director of the company wants to sell shares then in such situation then they have to take
permission from other shareholders. As per the company law in UK, for establishing private
limited enterprise, minimum two members are required. In addition to this, private firm can
appoint maximum two hundred workers. According to the company Law, private companies are
not required to keep or maintain index of its member which is considered to be as important
provision in case of public limited organization. In addition to this, as per the companies act,
private limited enterprise need to appoint minimum two directors. Private limited firm need to
have paid up capital of minimum one lakh (Hannigan, 2018. ). As per the company law in UK,
the amount received by an enterprise which is ninety percentage of the shares issued during a
specific time period,. If firm is not able to receive ninety percent of the amount then firm cannot
carry business further. In the case of a private limited organization, shares can be assigned to the
public without receiving the minimum payment. In addition to the above provision related to
establishing private companies, there is one more provision which states that private companies
need not to appoint company secretary. There is one more provision in companies act which is
related to Shareholders' written resolutions, the requirement for agreement in shareholders'
written matter was abolished, and the needed majority is similar to that for shareholder meetings -
a simple majority of the eligible shares for ordinary resolutions.
Relevant laws in the area of Company law
One important legislation in companies director disqualification Act, 1986. This
legislation under companies act provide detail about the process which can be executed for
disqualifying or terminating the director of company for misconduct or breaching legal duties.
This law is applicable to given case study has Linda can be disqualified for breaching her legal
duties. In context of given case study, after filing filings of law suit by ARA ltd against Linda,
judge in court under section 6, can pass disqualification order for specific period, by stating that
Linda can not act as a director or receiver of property of an enterprise. In addition to this court
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can pass order that Linda can not act as insolvency practitioner. ARA ltd company or
shareholders in an organization need to prove that Linda conduct as a director makes unfit to be
concerned in the management. Shareholders in ARA by giving proof or stating that Linda has
secretly formed new firm (Sinha, Sinha and Shekhar, 2017). Contract which Linda has signed
with Bat Ltd can be presented in the court as an evidence of her misconduct.
Duties of director under companies Act
According to the company law director in an organization should be appointed by board
of director. As per the company law in UK, the direct as well as business owners are different and
both of them have certain duties towards company. According to company legislation in UK, it is
the duty of director to ensure an effective of business. Companies law states that director is a
person who is mainly accountable for governing, directing as well as for managing an enterprise.
According to the various provisions in companies act, director can be appointed by
employees in an organization. It also dictates that the position of director can be filled by
shareholders. In a situation of mismanagement of business, the judge in the court might ordered
an enterprise to hire required number of directors (Kraakman, 2017).
In addition to this companies Act 2006 has laid down some duties of directors of company
these are director of an enterprise should work according to the power, role of direct is to promote
organizational success, they need to make independent judgment etc. In addition to this, it is the
duty of director in a firm to take appropriate action for eliminating conflicts at workplace.
According to the companies Act (Jones, 2017). A Director cannot accept benefits from third
parties which arise from his/her role. In context of given case study, for gaining the benefit, Linda
has entered into the contract with Bat Ltd which is Existing customer of ARA ltd which is
considered to be breach of her legal duties due to which she might have to face serious
consequences as well as legal issues. In addition to this, Companies act 2006, also states that a
Director need to always declare to other director their personal interest in any dealings which the
organization proposes to enter into (Hudson, 2017). In context of given case scenario, Linda has
not shared her interest related to the entering into contract with Bat ltd with any other director or
employee in a company, she just secretly executed the act which is considered to be the breach of
her legal duties. As per the companies act 2006, it is the duty of director in business entity to
promote interest of an organization and work for benefit of business. It has been analyses from
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the given case scenario that Linda has entered into the contract with Bat ltd. Just for fulfilling her
personal interest.
In addition to the above, the other duties of directors prescribed by board of director
include disclosure of its shareholding in business, to call statutory meeting., top deposit
application money in bank, to file return of allotment of securities, to declare dividend and
arrange payment, to issues as well as transfer share etc. It is the duty of director to ensure that
prospectus article or memorandum of association consists of complete as well as true information.
Liabilities of directors
According to the companies act 2006, the director in an enterprise has certain liability
related towards an enterprise as well as third party. Liability of director towards company include
an ultra vires act where the directors have entered into a contract beyond their powers. In such
case directors are personally responsible for the loss caused to the business entity. In context of
given case study, Linda is responsible fort the losses suffered by ARA ltd due to her misconduct.
As per the companies act, director is also liable for breach of trust which can be considered in a
situation when an individual makes secret profits (Herlin-Karnell and Ryder, 2017). In context of
given case scenario, Linda has earned profit by secretly establishing new company. She has also
secretly enter into a contract with the Bat Ltd. For earning profit. Therefore, law related to breach
of trust is applicable in give case study. ARA company can file law suit against Linda for
breaching her legal duties and also for Unethical, illegal act of earning profit.
Liabilities towards third party
According to the companies act, The director might have to face legal issues for fraud.
Director liable for fraud might have to pay compensation to the parties those who have suffered
loss due to unethical act. In addition to this, director is also responsible for signing contract
without mentioning the name of firm as well as for acting beyond their powers.
Criminal liabilities of director
The director of company might be imprisoned or they are liable to pay fine for conducting
the fraudulent activity. Director of the company is liable including the false information in the
prospectus. In addition to this, they have to face legal issues for not filling the return of allotment,
failing to issue share certificate, annual accounts as well as balance sheet etc. In context of the
given case scenario, Linda is responsible for holding the director position in more than one
company (Clifford, Ellis and Gerken, 2017).
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Case Law of Bankruptcy of organization located in Dutch, in this case study director is
jointly responsible for the financial situation of company. They are also held liable for estate for
the amount of the liabilities to the extent that these cannot be satisfied out of the liquidation of the
assets, If directors of companies had performed their duties then business entity might not have to
face such situation. In this case scenario, all the directors in an organization are equally
responsible for deficit. In addition to this, Dutch company has also faced to file return in the
relevant period of three years prior to the bankruptcy, this is the main reason directors in a firm
has to face legal issues (Barnard, 2017). The impact of EU law, the EU norm, has practical impact
of this background rule is rather limited because of its subjective preparation, at least where there
is a plausible commercial explanation for the directors decision.
Consequences of breach of legal duties by director of company
If in case, director of any enterprises breaches their duties then in such situation they
might have to face civil action. In addition to this, other consequences which director might have
to face for beaching their legal duties are legal actions. In context of given case scenario, it is very
much crucial for Linda to seek legal advice from solicitor before executing such acts as well as
protecting themselves from legal proceedings. In context of given case study, The ARA ltd can
bought various claims as Linda has breach her legal duties these claims are restitution of profit,
as Ara Ltd has to suffer loss due to misconduct of Linda (McLaughlin, 2018). According to
business and companies act the judge in the court might order any personal profit made by the
director in connection with the conduct to be surrendered to the organization, in such condition
Linda has to return the profit to an enterprise in order to prevent further harmful consequences or
legal consequences (Kraakman and Hansmann, 2017).
The purpose of formulating as well as implementing companies act 2006 by the legal
authority in the UK is to simply codified the legal duties of directors. Companies act 2006 in UK
provide the detail about the directors legal duties. It also highlights the consequences of not
fulfilling or breaching such duties.
Section 172 under companies act 2006, is related to overriding duty. It states that it is the
main duty of director in any organization to act in good faith. Section 172 under companies act
2006, also reveals that director is accountable for promoting the interest of an enterprise. It is very
much crucial for director for work for benefit of an organization. Section 172 in companies act
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also provides list of non – exhaustive constituents which are required to be considered by
directors while determining the activities for promoting the success of an organization. In context
of the given case scenario, considering the detail provided in the section 172 under companies act
that Linda has not performed any of her legal duties just because she has felt that she has not been
of management and Linda also realized that she has not involved in decision masking. Instead of
conducting the unethical or illegal act such as forming new business secretly and entering into
contract , she should have facilitated discussion with management and would have share her
interest in the contract, as this strategy would have proven appropriate. According to the section
172 under the companies that the following components or factors which Linda as a director of
ARA Ltd need to consider include possible consequences of long term decision. In context of
given case scenario, long term, decision include Linda decision related to secretly establishing
new company and entering into a contract with the Bat which is existing customer of an
enterprise in which she was working (Bruner,2017). Due to this act she might have to face serious
consequences. In addition to this, other factor Linda is required to considered this is the need to
act fairly as between the members of the company.
The section 175 under companies act 2006, states that it the duty of director to adopt an
appropriate action for avoiding the disputes at workplace. According to the section 175, role of
director in a company is to here they have or can have an interest that directly or indirectly give
rise to disputes between other people within an enterprise. It is applicable to directors exploiting
any opportunity or information. In context of given case scenario, section 175 under companies
act 2006, is applicable to Linda, as she has entered into the contract with existing customer of
ARA Ltd, she has taken up the opportunity or benefit which firm could have gained. In addition
to this, Linda has utilized company customer information without the consent of higher
authorities just for her personal benefit (Lin, 2018). Section 175 under companies act 2006, also
states that breach of the legal duties can not be considered ion such situation where the action or
decision of director likes to give rise dispute related to interest. Higher level management that is
other directors or shareholders in an organization can call board meeting for reaching to the
decision related whether director of company that is in give case scenario Linda has breach her
legal duty or not. During the board meeting on such matters, defaulter does not have right to vote.
Section 175 under companies act 2006, also states that if there are few directors in a company
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then in such situation shareholder in an enterprise can rectify or approve breach of duty by
executing a process of statutory rectification.
Remedies available with company who has suffered losses due to the breach of legal duties by
director
The option available with ARA ltd is that business entity can claim injunctive relief. ARA
ltd. Bring a claim against a director to prevent them executing a breach or continuing to breach
their duties, known as an injunction. Rescission of a contract, If a director signs a contract that is
contrary to the company’s intentions, this can be reversed. This legal action can be taken by
ARA Ltd as Linda has entered into a contract with the existing customer of company, Damages.
Linda might have to pay for Damages to a company, as ARA ltd has suffered loss as the result of
a director’s negligent misconduct of his or her duties (Jones, 2017. ).
In addition to the above, in some situations shareholders in an organization can bought
claim against Linda for breaching her legal duties. But shareholder can only file law suit and
make claim under name of an enterprise and losses suffered by business entity due to misconduct
of director. Shareholders also have right to terminate Linda for breaching her duty, these right is
enclosed in statute and cannot be taken away by a organization articles.
Both company and director of an organization might have to face severe consequences
due to breach of legal duties by director (Hannigan, 2018). Unethical activities such as breach of
legal duties have negative effect on the reputation of director. In context of given case study,
Linda need to prove that she has acted honestly as well as reasonably in particular circumstances,
as this strategy will assist her in preventing legal obligations.
CONCLUSION
It has been concluded from the report that due to breach of legal duties directors in an
organization might have to face legal issues. Study has also concluded that in give case scenario,
Linda has breached her duties, there are different evidences such as secretly formation of new
company proves the facts. It has been concluded from the assignment that director has certain
duties to be performed. There are various remedies or actions has been suggested which can be
utilized by an organization for compensation the losses faced by firm due to misconduct of
director.
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REFERENCES
Books and Journals
Jones, L., 2017. Introduction to business law. Oxford University Press.
Kraakman, R. and Hansmann, H., 2017. The end of history for corporate law. In Corporate
Governance (pp. 49-78). Gower.
Barnard, C., 2017. Law and Brexit. Oxford Review of Economic Policy, 33(suppl_1), pp.S4-S11.
Herlin-Karnell, E. and Ryder, N., 2017. The robustness of EU financial crimes legislation: A
critical review of the EU and UK anti-fraud and money laundering scheme. European
Business Law Review. 28(4). pp.427-446.
Hudson, A., 2017. Understanding Company Law. Routledge.
Kraakman, R., 2017. The anatomy of corporate law: A comparative and functional approach.
Oxford University Press.
Carby-Hall, J., 2017. Worker participation in Europe. Routledge.
Hannigan, B., 2018. Company law. Oxford University Press, USA.
Sinha, P.R.N., Sinha, I.B. and Shekhar, S.P., 2017. Industrial Relations, Trade Unions and
Labour Legislation. Pearson Education India.
Jones, L., 2017. Introduction to business law. Oxford University Press.
Clifford, C., Ellis, J. and Gerken, W., 2017. Hedge fund boards and the market for independent
directors.Page, J., Kaur, M. and Waters, E., 2017. Directors’ liability survey: Cyber attacks
and data loss—a growing concern. Journal of Data Protection & Privacy.1(2). pp.173-182.
McLaughlin, S., 2018. Unlocking company law. Routledge.
Bruner, C.M., 2017. Opting Out of Fiduciary Duties and Liabilities in US and UK Business
Entities.
Lin, T.Y., 2018. LIABILITY OF DIRECTORS FOR CRIMINAL BREACH OF TRUST:
RECOVERING A LOST INTERPRETATION. Singapore Journal of Legal Studies.57.
pp.84.
Hannigan, B., 2018. Company law. Oxford University Press, USA.Zhang, C., 2018. The Limits of
Fiduciary Duties in Business Organizations: The Evidence from Limited Partnerships in the
US and UK. European Company Law. 15(3).pp.83-89.
ONLINE:
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Directors Fiduciary Duties, 2018. [Online].Avialable
through:<https://www.franciswilksandjones.co.uk/site/our_services/business/
claims_against_directors/directors_fiduciary_duties/?
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