Business Law Report: UGB 110 - Company Law, Contracts, and Employment

This report, prepared as a response to a business law assignment, analyzes key aspects of UK business law. It begins with a report to the chairman of Blotter, addressing the legal responsibilities of directors regarding transactions with personal interests, specifically concerning a lease renewal and potential conflicts of interest. The report then examines the implications of a company going public, focusing on how the board's attitude toward shareholders and stakeholders must evolve. Further, the report delves into contract law, explaining the rules of acceptance and revocation of offers, and outlining the common law duties of employers and employees. Finally, the report provides advice to Eva and Joseph regarding their rights upon dismissal, differentiating between the rights of employees and self-employed individuals.

Business Law

Q1. As company secretary, write a report to the chairman of Blotter that deals with the
following issues:- Explain the legal responsibilities of directors of UK companies with
regard to transactions with companies in which they have a personal interest.
To: Chairman of Board
From: Company Secretary
Date: 26th March, 2020
Subject: Shareholder’s interest with respect to renewal of lease
In the following report, an attempt has been made to explain some of the issues or
concerns of company’s shareholders with respect to the proposed transaction of renewal of lease
for one of the property which the company rents and is owned by Mr. Colin, Chief Operations
Director and a member of the Board of Directors. Renewal of lease is now due and Colin has
demanded a substantial increase in the amount of lease which is concerning for some of the
shareholders and might have repercussions that you want to consider and consequently, take
necessary steps to avoid the conflict of interest between directors of the company and its
shareholders.
Directors of a company have many responsibilities both legal and ethical with respect to
corporate governance and company law. As per the section 171-177 under the provisions of
Companies Act 2006, responsibilities and duties of company’s director involves ensuring a legal
and ethical conduct. With respect to transactions with company involving personal interest of the
director, there are two particular responsibilities and duties which must be duly met by the
director. As per the provisions under section 175 of the Companies Act 2006, it is the duty and
responsibility of the director to avoid any conflict of interest between his personal interests and
the interests of the company (Lista, 2014). It particularly applies to the situation where any
exploitation of company’s property, information or material is evident and doesn’t necessarily
apply to conflict of interest which may arise due to a transaction or an agreement with the
company. In this case, it is arguable that Colin has a personal interest in the lease agreement or
transaction with the company but this doesn’t give rise to any conflict of interest since it is
imperative for the company to have a place or premises to conduct business and even if the
premises are owned by the director, it doesn’t form a base of conflict of interest. However, with
respect to increasing the amount substantially, it can only be judged after obtaining relevant
information to form an opinion as to whether the price increase is justified or not. As per the
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provisions of section 177 of the Companies Act 2006, it is also an important duty of the director
to disclose any personal interest in any proposed agreement or transaction with the company
(MacDonald, 2010). In the above case, Colin has disclosed and mentioned about his personal
interest with the proposed lease renewal with the company and has therefore, explicitly met all
the legal requirements and now it is up to the discretion of other board members to decide upon
the terms and conditions of the lease renewal and Colin shouldn’t be present in the room while
the decision is being made. As per the Disclosure and Transparency Rules (DTR), every listed
company is under a legal requirement to make a public announcement of any party transaction
which involves director of the company and obtain an approval from the shareholders of the
company. However, the above case doesn’t relate to any party transaction and hence, it is up to
the discretion of board of directors to make any decision that is best suited for company’s
interests.
In the above case, Colin has completed his duties as a company director and there is no
conflict of interest and now it is up to the board of directors and other members of the board to
make a decision in absence of Colin which is best for the interest of the company and the
shareholders.
Q2. Explain how the board’s attitude to its shareholders and other stakeholders will need to
change if James goes public.
If a company undertakes a change in its status from private to public, it gives the
opportunity for anyone or the general public to purchase the shares of the company. As per the
vision of the current CEO of the company, if the shares of the company are approved for trading
on AIM which is the junior stock market of United Kingdom, it is very certain that investors
from outside the company will buy shares and holdings and invest their money in the company.
James is a company which is currently owned 100% by its family members and any change in its
ownership which is bound to happen as a result of going public will have serious implications for
the company. Board of directors will have to undertake a much comprehensive approach and
take care of the interests of the shareholders and other stakeholders of the company since the
company will no longer be effectively a family company where all the shares of the company are
owned by the members of the family. In contrast to earlier context, the board of directors will
now be expected to act in the best interest of the complete shareholders of the company and not
just the family members. In the past, the board of directors of the company have been cancelling
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dividends multiple times to invest in the growth and development of the business but the new
shareholders of the company may expect a little more clarity and certainty in the annual
dividends which might restrict the power of the board to cancel annual dividends. Shareholders
of a public company also anticipate the board to take calculated risks instead of any business risk
and now the board of directors of James Ltd. might not be encouraged to take extensive business
risks. If the board of directors of James Ltd. after going public still constitute of family members
and continue to take decisions in the personal interest of the family, the shareholders among the
public may demand and execute their rights to change the composition of the board which will
now force the board of directors to act in the best interest of the company’s shareholders as a
whole and not just family members. Provisions related to employment and expectations of the
company’s employees may also have a significant impact on the attitude and views of the board
of directors of James Ltd after the company changes its status from private to public (Council,
2012). It may be required to develop a proper code of conduct and ethics guideline to give
employees a fair treatment at the workplace. Existing views and beliefs of the board of directors
of the company who are basically the family members will also face resistance from the newly-
appointed and individual directors who have a vision to maximise and safeguard the interests of
all the stakeholders of the company and not just the family members (Toms, Wilson and Wright
2015). Hence, on the basis of above arguments and discussion, it can be concluded that the
attitude of board of directors of James Ltd. will have to change a lot in alignment with the
interest of all the company’s shareholders and stakeholders if the company goes public and any
decision will have to be evaluated from the perspective of all the stakeholders including investors
from public and not just the family members of the company upon being a public company.
Q4. In relation to the law of contract, explain the rules relating to:
(a) Acceptance of an offer
As per the provisions of the contract law, an offer must be accepted with all the terms and
conditions for the purpose of making an agreement. A valid acceptance must be given to ensure
the validity of a contract and formation of an agreement (Stone, 2012). As per the provisions of
the contract law, a valid acceptance must meet the following rules and guidelines:
 A valid acceptance implies that acceptance to the offer made by a party must be
communicated to the offeror effectively. Ineffectiveness in communication of the
acceptance shall be deemed as invalidity of the acceptance made. Mere silence on the
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part of either party cant be treated as acceptance which is effectively communicated.
However, in some cases, acceptance may be communicated or provided by the way of
conduct also as it may seem just.
 As per the rules of company law, for an acceptance to be valid and legal, the terms of
acceptance must exactly and precisely match the terms and conditions of the offer and if
any deviation or variation is made in the terms of acceptance, it will be considered as a
counter offer and no contract or agreement will be made.
 Terms of the agreement should not be vague and ambiguous. There should be an element
of certainty in the agreement and the offer and the acceptance.
(b) Revocation of an offer
As per the provisions under the contract law, an offer can be revoked any time before it is
accepted. However, it is imperative that the revocation should be communicated effectively
before the offer has been accepted. Revocation of the offer needs to be communicated to the
offeree and it is not mandatory for the offer to convey or communicate the revocation of the offer
personally and it can also be done with the help of a reliable and trustworthy third-party.
However, once the offer is accepted by the offeree and no information about revocation is
communicated by the offeror before such acceptance, the agreement is considered to be valid and
any inefficiency to perform or execute the terms of agreement shall be treated as the breach of
contract as per the law.
(c) Explain the common law duties imposed on: employer and employee
Some of the common law duties and responsibilities which are imposed on both employer
and employee even if they are not explicitly stated are as follows:
Employer:
An employer has the following duties which should be duly fulfilled:
 Duty to provide the agreed amount of payment and compensation to the employee if he is
working.
 Take care and adequate measures for ensuring the health and safety of the employees at
the workplace.
 It is the duty of the employer to show mutual care and respect for the employees and have
trust.
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 It is the duty of the employer to provide correct information to the employees about their
rights under the employment law.
Employee:
Employees of an organisation also have legal duties and responsibilities which should be
duly met:
 It is the duty of the employee to show reasonable care and diligence while performing the
tasks assigned to him and ensure that the company doesn’t bear any loss due to his
carelessness or negligence.
 It is the duty of the employee to work with complete honesty and integrity and priority
should be given to the organisational interest instead of his personal or individual interest.
 It is the duty of the employee to not disclose any secret or business information to any
outside party which can harm or potentially risk the business activities.
 It is the duty of the employee to take extreme care of the company’s property and
resources.
Q5. Advise EVA and JOSEPH what rights they have on their dismissal by MORGAN.
Unlike normal employees who get maximum protection from the employment laws and
rules, self-employed people don’t have a high scope of protection and rights. If any individual is
described to be working with any organisation as self-employed, termination can occur as per the
terms of contract and at the discretion and will of the employer and the organisation is under no
legal obligation to offer any kind of notice or assistance (Leighton, 2015). However, it is
mandatory for the organisation or the company to consider and evaluate the genuineness of the
agreement and have a discussion with the individual to make sure the authenticity of self-
employed agreement before any termination (Kitching, 2015). In the case of Eva, she was
allowed only to work on the projects assigned to her by Morgan and she also had to report at the
premises of the company during normal office working hours. It is apparent that the contract
between Eva and Morgan is not truly a self-employment contract and it gives her a right to argue
in the court of law that in reality her agreement was normal employment and she can also claim
for protection under the normal employment contract since her time of service with the company
was also 3 years which is more than standard of 2 years. In case of Joseph, he had the liberty to
work on projects different from Morgan and could also get his work done through other sources
and mostly worked from home. Hence, it can be observed that Joseph truly had a self-employed
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contract with Morgan which practically gives no protection or rights under employment law to
Joseph and the termination can occur at the will of the employer.
Q6. In the context of Bel’s anticipatory breach of contract, explain any possible remedies open to
WISE Ltd.
In the above case, there was a clear contract between Bel and Wise Ltd. and the refusal of
Ben to comply with the terms and conditions of the contract accounts for an anticipatory breach
of contract. In anticipatory breach of contract, the victim party can sue the party to the breach of
contract for the damages (Olejniczak, 2015). The possible remedies open to Wise Ltd. in the
mentioned case of anticipatory breach of contract are as follows:
Specific Performance: In many cases, court of law can order the party to the breach of
contract to perform his part or duty as specified under the terms of contract especially in cases
where it is more suitable and relevant for a party to break the obligations under the contract and
just pay for the damages (Andrews, 2018). However, in cases of service or employment, specific
performance is not a possible option and hence, specific performance is not a possible remedy
which is open for Wise Ltd. with respect to anticipatory breach of contract by Bel.
Damages: In the event of breach of contract, a remedial procedure for suing the party to
breach of contract is a possible option available for the innocent party. In the above case, Wise
Ltd. have an option to sue Bel for paying the damages which the company have faced due to an
anticipatory breach of contract. However, the amount of damages can never exceed the actual
amount of loss and the only objective of this remedial measure is to provide a position to the
victim company in which they would have been upon proper performance and compliance of the
contract (Rowan, 2012). Ben would be held liable for paying the damages which have occurred
to Wise Ltd. in the form of advertising campaign which costed £50,000. As per the law of
contract, Wise Ltd. have a possible remedial action to sue Bel for the damages in the form of
preliminary expenses. As far as amount expected in terms of profit with supply to a large book
club is concerned, it will need to be evaluated whether this accounts for a normal profit for Wise
Ltd. as this book club was not the market of the company during the formation of contract and it
is not certain whether suing Bel for damages with respect to expected profit is a remedial
measure possible or open for Wise Ltd.
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REFERENCES
Books and Journals
Andrews, N.H., 2018. Breach of Contract: A Plea for Clarity and Discipline.
Council, F.R., 2012. The UK corporate governance code. London, September.
Kitching, J., 2015. Tracking UK freelance workforce trends 1992-2015. The handbook of
research on freelancing and self-employment. pp.15-28.
Leighton, P., 2015. Independent professionals: Legal issues and challenges. International Review
of Entrepreneurship. 13(2). pp.81-92.
Lista, A., 2014. Directors’ duties in the UK. In Research Handbook on Directors’ Duties.
Edward Elgar Publishing.
MacDonald, R., 2010. The Companies Act 2006 and the Directors' Duty to Disclose. Available
at SSRN 1767469.
Olejniczak, A., 2015. Anticipatory breach of the contract according to Article 4921 of the Civil
Code. Ius Novum. 2. pp.73-85.
Rowan, S., 2012. Remedies for Breach of Contract: A Comparative Analysis of the Protection of
performance. Oxford University Press on Demand.
Stone, R., 2012. Forming contracts without offer and acceptance, Lord Denning and the
harmonisation of English contract law. Web Journal of Current Legal Issues. 2012(4).
pp.n-a.
Toms, S., Wilson, N. and Wright, M., 2015. The evolution of private equity: corporate
restructuring in the UK, c. 1945–2010. Business History. 57(5). pp.736-768.
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