Analysis of Carborundum Company Law: Shareholder & Director Issues

This case study delves into the intricacies of company law, focusing on the Carborundum case. It examines key issues such as shareholder liability, the procedures for removing a managing director, the decision-making processes of the board of directors, and the role of the company's constitution. The analysis applies relevant laws and principles, including the importance of the Operating Agreement, shareholder responsibilities regarding company debts, and the legal implications of actions taken by directors. The study highlights the potential liabilities of directors under various sections of the law, such as improper use of information, causing detriment to the company, and gaining advantages for themselves or others. The case also covers the procedures for removing a director, emphasizing the need for proper notice, quorum, and compliance with the company's constitution. In conclusion, the case underscores the importance of understanding the responsibilities of company members and the advantages of limited liability, as well as the procedures for amending the company's constitution.

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COMPANY LAW
Name
Course
Date

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Part A
Issue
The issues include the potential liability of the shareholders, the procedure taken to
remove managing director, how board of directors make decision at the board meeting, and how
to remove a managing director supported by the company’s constriction.
Relevant Law and Application
There are various laws that may be applied in the above issues. In most cases the board of
directors may decide to attach the Operating Agreement to the Articles of Organization.1 This
may make the document to be published and made public. On the other hand, the privacy reasons
may warrant avoiding publication. The Operating Agreement may have the Company’s by-laws
that may provide regulations for the ownership transfer, liabilities, voting rights, management
structure, business activities, management authority, and the questions that may be vital to the
success of the business.
The general rule is that shareholders and the members are not individually liable for the
business debts and liabilities. They can be held responsible only for the value of their investment
in the business. They can only be held responsible due to piercing the veil as it was in the case
Tayloe v. Sellco Two Corporation, 2014 WL 3674252, personal guaranties, tortious act, liability
for consenting to distribution in breaching of law, failure to remit employee holding taxes, and
failure to pay taxes.
1 Rouse, Robert W., Thomas R. Weirich, and Paul Munter. "New mandate: Reporting on internal controls." Journal
Of Corporate Accounting & Finance (Wiley) 15, no. 2 (January 2004): 62.

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Clause 4 of the Constitution states that Hillary shall forever be the director of the
Carborundum. As long as this internal management rule is still there, then the security of her
position as the director is guaranteed.2 Nonetheless, the Company can remove her from the
position if they amend the constitution by a majority vote to allow her to be removed from it.
This is possible because the contract is unilaterally alterable. To avoid such a situation, Hillary
can push to have an independent employment contract which cannot be changed.
If Hilary may convinced Colin to issue 50, 000 $1 shares in Carborundum to Inventions
and a decision is passed in the absence of Ben and Alan, the consequences may include: Firstly,
the director may be charged with improper use of information under s183. Secondly, the director
may also be charged with cause of detriment to the company under s182, and lastly, be charged
with gaining advantages for themselves or others. In this case, it is evident that Hillary wanted to
benefit herself by issuing shares to her company. On the other hand, s195 states that interested
director excluded from voting unless Board consents.
Carborundum has the capability of removing Hillary as its Chief engineer. This can be
done in a General Meeting where most members support the resolution with 80% of the votes
through show of hands.3 However, according to the case of Re Pembury Pty Ltd, it is a
requirement of the law that the member is given notice in advance and the removal is based on
quorum.4
Conclusion
2 Fenna, Alan. 2012. "Centralising Dynamics in Australian Federalism." Australian Journal Of Politics & History
58, no. 4: 583.
3 Schuit, Sophie, and Jon C. Rogowski. "Race, Representation, and the Voting Rights Act." American Journal Of
Political Science 61, no. 3 (July 2017): 516.
4 Ibid., 588.

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In sum, it is important that when forming a limited company, every member should know
his or her responsibilities. On the other hand, a Company has an advantage of exempting its
members from being liable to its debts. Lastly, the amendment of any of the company’s
constitution needs the support of 80% of the members.

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Bibliography
Fenna, Alan. 2012. "Centralising Dynamics in Australian Federalism." Australian Journal Of
Politics & History 58, no. 4: 580-590.
Rouse, Robert W., Thomas R. Weirich, and Paul Munter. "New mandate: Reporting on internal
controls." Journal Of Corporate Accounting & Finance (Wiley) 15, no. 2 (January 2004):
59-66.
Schuit, Sophie, and Jon C. Rogowski. "Race, Representation, and the Voting Rights Act."
American Journal Of Political Science 61, no. 3 (July 2017): 513-526.