Company Final PDF

Company Final Ch6 A promoter? - a person who’s responsible for forming the company with reference to a given project and to take the necessary steps to start it 4 kinds of promoter? (POFE) 1. Professional promoter à he’s specialized in the job of promoting the company 2. Occasional promoter à he pro...

Company Final Ch6 A promoter? - a person who’s responsible for forming the company with reference to a given project and to take the necessary steps to start it 4 kinds of promoter? (POFE) 1. Professional promoter à he’s specialized in the job of promoting the company 2. Occasional promoter à he promotes the company once in a while but not on a regular basis 3. Financial promoter à he promotes the company financially like a commercial bank 4. Entrepreneurial promoter à he forms the idea and takes the necessary steps to bring a company into existence and actually brings it into existence die 5 functions of a promoter? - To discover an idea for forming a company - In investigate whether the idea is possible and profitable - To choose suitable people as first directors - To choose a name for the company - To choose bank and legal advisors 4 duties of a promoter? § To fully disclose all the material facts regarding the formation § To fully disclose the facts relating to the property they want to sell to the company § Not to use their position in an unfair way § Their liable for fraud and statutory mistakes Case: Barnes case à a promoter is not allowed to take profit from selling his own property to the company unless all the facts are disclosed, and if he sells without fully disclosing, the company may either reject the sale or approve it and recover the profit he made, so either way he will not get any profit - Erlanger case: he bought the island for 55,000$ and sold it to the company for 110,000$ and they sued him because he did not disclose Legal position of a promoter? - The promoter has a fiduciary position, which requires him to fully disclose any relevant facts and any profit he made - so, he cannot make any direct or indirect profit at the expenses of the company he promotes, he will be forced to give back the profits Pre-corporation contracts? - Any contract entered to before the company came into existence is void - And the person who claims the contract on behalf of the company may be held liable - Pre-corporation contracts cannot be approved after its incorporation unless it’s authorized by the terms of incorporation and the company accepted it and communicated its acceptance then its considered binding Remuneration of Promoter? Salary - He may be paid in a lump sum (single payment) sin - He may be given shares of the company - He may be given the option to buy the shares at their normal constant price when the prices are high - He may sell his own property to the company and earn profit S Documents needed for incorporation are 6 what are they? 1. MOA 2. AOA 3. List of directors 4. Consent letters from directors 5. Capital 6. Statutory declaration Registration and incorporation of the company? - The 2nd stage of forming a company is to register it, the promoters have to prepare a file with certain documents such as: • The MOA & AOA signed by at least 7 people • File a prospectus if it’s a public company • A list of directors with their signed consent • Address of the company - The directors have to submit a declaration that they have shares, and they paid the money What is the MOA? - It’s the charter of the company, it sets out limits the company cannot exceed do What are the 6 clauses of the MOA? NORA LC 1. Name clause à The name should not be an identical name to an existing company & it should not be prohibited & the name must end with the word “limited” so the people know what they’re dealing with and in the case of “private limited” company the word “Private limited” must be the last word Case: Ewing case – if the company’s business is different from the complaining party, confusion is not likely to happen, and an injunction will be denied 2. Registered office à The company has to state the province where their offices are situated and must give the exact address and the name of the company To let people, know the jurisdiction of the company, & to also know where their annual meetings are held and to let the government and clients know the whereabouts of the company 3. Objective à The objective clearly states the company’s activities, and it must mention their main objectives and subsidiary objectives and other objectives 4. Liability à it mentions the different liabilities of the shareholders such as the limited, unlimited, and limited by guarantee The liability of the members is limited by their shares - The company limited by guarantee does not have shareholder, but they have members that promise to pay a small amount if the company goes bankrupt 5. Capital à The authorized capital must be mentioned, and the company is not allowed to issue above the authorized capital 6. Association à In this clause members must be declared with their names, address, and occupations along with their signature confirmed by proper witnesses Diclaration of members What are the 4 requirements to a MOA? - The MOA of every company must be • Divided into numbered paragraphs • Signed by members & witnessed • Dated • Printed I What is required when signing the MOA? - It must be signed by every member with their name, father’s name, and surname - Their occupation and nationality and their address - If it’s a woman, her husband’s full name has to be written Can the “Name Clause” be altered? - Yes it can be changed any time by passing a Special Resolution (70%) of the shareholders must vote for it - However, if it’s changed to an identical name of an existing company it must be approved by the government a - And if the government urges for the name change for lawful reasons, they need to pass an Ordinary Resolution (51%) of the shareholders must vote for it How can shareholders alter a “Registered Office Clause”? - If the change of the office is in the same city à ordinary resolution - If the change is from one city to another in same state à special - If it’s from one state to another à special resolution Can the “Objective Clause” be altered? - Yes, the company may change its objective by passing a Special Resolution and filing it to the registrar within a month How can shareholders alter a “Capital Clause”? - They can pass an Ordinary Resolution to: - Issue new shares - Dividing existing shares into shares of larger or smaller amounts - Cancelling unissued shares What does “Doctrine of Ultra-vires” mean? - It means beyond powers - It may be an act of ultra vires of the directors of the MOA or the AOA Such as an act beyond the powers given by the MOA or AOA Case: The application of Doctrine of ultra-vires was explained in a case of Ashbury Railway where the company's objectives as stated in the Memorandum were different than the work agreed to in the contract. The directors entered into a contract with Riche, for financing the construction of a railway line in a foreign country and the company later approved the act of the directors by passing a special resolution at a general meeting. The company, however, rejected the contract. Riche sued the company for breach of contract. It was held that the contract, being of a nature not included in the company's objectives, was void as being ultra-vires not only of the directors but of the whole company and could not be made valid by ratification on the part of the shareholders, and therefore the company was not liable to be sued for breach. So, the consequences of an ultra-vires transaction are: a) The company cannot sue any person to enforce any of its rights. b) No person can sue the company for enforcement of its rights. c) The directors may be held personally liable to outsiders for ultra vires acts set Doctrine of constructive notice: a person is expected to inspect the basic public documents of the company “AOA,MOA” before any transaction with the company. - He must know what actions are not authorized for the directors - Even if he didn’t inspect these documents he would be assumed to have done so. - Doctrine of constructive notice, is not workable for business persons. Purpose of the constructive notice doctrine: To secure the company from the outsiders when they want to trick the company by alleging they were not aware of the content of the MOA,AOA, & to escape from their contractual liabilities. CASE LAW: “ The person dealing with the company is taken not only to have read those documents but to have understood them according to their proper meaning”. Doctrine of indoor management: It offers protection to the outsiders who deal with the company by giving them the confidence in dealing with the company with limited liability. It makes companies liable incase the deals were made by the director: - Whose appointment was defective. - Whose appointed properly but were not yet given authority - Whose not yet been appointed as director. - Who’ve been given authority in a meeting which had lacked quorum (reasonable # of shareholders). CASE LAW: The directors borrowed money from the plaintiff, where the shareholders claimed that this resolution is not authorized, however the company was held liable, the court said that the person dealing with a company is entitled to assume that there is compliance with the matters of the internal management and procedures, so he knows what he’s bound to know such as what’s in the MOA & AOA but not what’s out of his reach & what’s done behind the doors. The doctrine of indoor management provides outsiders protection while dealing with the company but not in these case: Exceptions of the doctrine of indoor management: 6 - Knowledge of irregularity. - Sufficient ground for suspicion. - Forgery. - Acts outside apparent authority. - Non existence of agency. - Acts ultra vires the company. Memorandum of Association (MOA) Association (AOA) Articles of OA contains the terms the company must meet to be registered. Internal regulations of the company. Contains objectives & powers of the company. Provides rules on how those objectives & powers would be effective. Cannot be easily changed or altered. It can be easily changed or altered. It governs the relationship of the company with outsiders. It governs the internal management of the company. Ch7 Salomon Vs. Salomon Case: He started a small business of boot making, after his sons asked him to change it to LLC he agreed, he asked his lawyer to make it ready, so 7 family members are now the shareholders, after the war they faced some issues so they took a loan, then in liquidation he couldnt pay the creditors, so they went and sued him “himself” the lower court said he is guilty and asked him to pay them back, then the appeal and the higher court all confirmed the decision, they appealed to the house of lords and they overturned the decision, “it doesnt matter if he has most of the shares because of the “separate legal entity” so they had to sue the company and not Salomon himself. 4 points that show incorporated companies have a separate legal personality: A- Company’s property is the company’s property. Mr Macaura holds nearly all the shares of a company that dealt with timber, he insured the timbers in the insurance company BUT he did so in his own name. The insured timber caught fire, so he asked the insurance company to pay him for that, but the insurance company told him that they’re not liable to pay him because the insurance that he bought was in his name and not the company’s name. Held: even if he holds all the shares, and that no one has any property in the assets of the company, the insurance company will not pay. B- Company’s debt is company’s debt. Earlier stated in Salamon case. The company is responsible for its own debt and not the owner C- Company can contract with their members, directors and outsiders. Mr. Lee formed a company (Lee’s Air Farming Ltd), where he held all but one of the shares in the company, he voted himself to be the managing director, he also appointed himself as a pilot in the company with a salary. He was killed in an air crash while working for the company, so his wife Mrs. Lee claimed compensation for the death of her husband in the course of his employment. The company rejected on the grounds of that he wasn’t a worker, because the same person cannot be the employer and the employee. Held: it was held in favor of Mrs. Lee and she was entitled to get compensation since it was in his capacity as the managing director to give himself orders in his other capacity as a pilot. D- Companies can commit torts and crimes. - Companies are liable for their employees torts - and they can be liable for crimes which don’t require a mental element like intention The corporate veil - Foreign investors entering the Saudi Market usually incorporate a LLC to save their liability and to limit their risk to the amount of their contribution. But there are important shari’ah law principles and regulations that they must keep in minds which may result in being personally liable Concept of a corporate veil: The principal features of Salomon’s case were that a company: - Is a legal entity separate from its shareholders. It Can own a property. It Can sue and be sued in its name. It Has a never-ending existence. Lifting the corporate veil: It means that the court disregards the existence of the corporation because the owners failed to keep 1 or more of the corporate requirements and formalities. Its a judicial act. 2 Grounds on which the corporate veil may be lifted: Fas 1- Judicial grounds. 8 PB - Fraud or improper conduct. - Avoiding legal obligations. -The company is a Sham. - Public interest. - For benefit of revenue. - Company employed as an agent. - Enemy character. – Avoidance of welfare registration 2- Statutory grounds. 6 - Reduction of number of members. - Fraudulent trading. - Misdescription of the company. - Premature trading. - Failure to refund application money. - Holding and subsidiary companies For benefit of revenue (judicial ground): The court has the power to disregard corporate entity if its used to escape from tax obligations. Enemy character (judicial ground): A company may be assumed as an enemy company when the persons who’s in control of its affairs resides in an enemy country. The company is a Sham (judicial ground): When a company is fake, H was a managing director in P’s company. There was a condition not to take customers of the company after leaving his employment, when H left the company and set up his own company and took P’s customers. P claimed injunctions against H. Case :L agreed to sell the house to J, but later changed his mind so to avoid the agreement he made a company and transferred the house to the company, the company was controlled and owned by L only, it was held that the company was created as a sham in an attempt to avoid the agreement C Company avoiding legal obligations (judicial ground): I if the company is used to avoid legal obligations, the court may disregard the company Company employed as an agent (judicial ground): A company may act as an agent of another company, based on the agency principle, the principal will be liable for the act of the company. BC (Waste company) was carrying on business on premises belonging to SS, the waste company BC was a subsidiary of SS. When BC acquired the premises, SS claimed compensation, BC refused because in law SS and the waste company were different entities. SS was granted the compensation. Issue: whether the subsidiary was carrying on the business as the holding’s business or as its own? 3 requirements must be established: - The profits of subsidiary company must be treated as the profits of the holding. - The person running the business must be appointed by the holding company. - The holding company must be the head and brain of the trading venture. Public interest (judicial ground): The courts may lift the veil to protect the public policy and prevent transactions opposite to the public policy Ch8 Joint stock company: Its a business venture, established by one or more natural or legal persons, and the capital is divided into negotiable shares, its liable only for the debts & obligations of its business activities, and the liability of the shareholder is limited. - Its capital must not be less than 500k riyals, and the paid up amount may not be less than one quarter of the value. - The authorized capital (total shares of the comp) will be mentioned in the AOA - The issued capital (shares owned by shareholders) can be increased within the limits of the authorized capital and if it’s paid in full The AOA of JSC must include: * Name of the company. * Headquarters. * Objectives of the company. * The authorized & issued capital. * Number and classes of shares. * The management and the number of board members. * company’s term *Details of commencement. *Other provisions . Electing Board Members – board members will be elected by an Ordinary General Assembly, and the GA may dismiss all or any member even if the AOA states otherwise and they can elect new members - The AOA can specify the method of forming the Board of Directors & the method of voting - The term of office will be mentioned in the AOA and can’t exceed 4 years - Board members may be re-elected unless AOA states otherwise, and the termination method will be mentioned in the AOA Termination of Board Members – the GA can terminate any membership if the member fails to attend 3 consecutive meetings or 5 inconsecutive meetings without a lawful reason Disclosure of interest in business transactions & contracts – the board member must notify the company immediately of any direct or indirect interest that may affect the company - The notification will be recorded in the beginning of the meeting & he can’t participate in voting on the resolution on this regard - The board will inform the GA which member has direct/indirect interest and the notification will be included in a special report by an auditor Failing to disclose? – if the member fails to disclose, the company can take him to court for breaching the contract or he may be obligated to compensate for any profit or benefit he took Liability for damages that resulted from the business transactions & contracts - If there’s damage from business deals or contracts, both the member that had an interest in the deal and the Board of Directors can be held liable. This happens if the board members fail to perform their obligations or the deals are unfair, cause a conflict of interest, and harm the shareholders. - Board members who vote against any resolution will not be liable when they explicitly express their objection during the meeting - Being absent from the meeting is not an excuse to be relived from liability, unless the absent member has either been unaware of the resolution of was unable to object after he aware Shareholder GA meetings – the shareholder GA meetings will be chaired by the chairman of the board or the vice chairman, if chairman’s absent or if both aren’t possible, the shareholders will vote for a board member to chair the meeting - A shareholder has the right to attend the GA meetings even if the AOA says otherwise and may even assign someone other than a board member to attend on his behalf - Different means of technology may be used to hold the meetings Powers of the EXTRAORDINARY GA – the extraordinary meeting will have the power of - Amending the company’s AOA except when it comes to: 1. Depriving a shareholder of his fundamental rights specifically in the following: -receiving dividends to other than the employees -receiving a share of the company’s net assets in liquidation -attending general or special meetings & participating in voting on decisions -disposing his shares -requesting to access the company’s records & documents & challenging the decisions issued in the meetings 2. Amendments that increase the financial burden of shareholders unless they all approve, -& amendments such as deciding on whether the company should continue or not, -approving the company’s purchase of its shares Call for assembly meetings – the call for the meeting should be made 21 days before the meeting - The shareholders must be notified by mail sent to their address or by announcement - If the company’s listed in Tadawul, CMA & commercial registrar must be informed of the meeting -they must state who has the right to attend, the meeting agenda, the venue with the date & time - shareholders of unlisted JSC can hold a GA meeting without following the conditions of calling a meeting Quorum of ORDINARY GA meetings – an ordinary meeting can be valid if only 25% (quarter) of the shareholders with voting rights attend unless if the AOA states a higher percentage, but the % must not exceed half - A second meeting will be held if the first meeting does not meet the quorum within a month of the first meeting - Or it can be held an hour after the first meeting if it’s allowed in the AOA and if it’s possible - In all cases, the 2nd meeting will be deemed valid regardless of how many shareholders with voting rights attend - Decision of an ordinary meeting will be passed by the majority vote of those with voting rights Quorum of EXTRAORDINARY GA meetings – an extraordinary meeting can be valid if only 50% (half) of the shareholders with voting rights attend unless if the AOA states a higher percentage, but the % must not exceed two thirds 67 - A second meeting will be held if the first meeting does not meet the quorum within a month of the first meeting - Or it can be held an hour after the first meeting if it’s allowed in the AOA and if it’s possible - In all cases, the 2nd meeting will be deemed valid if it’s attended by 25% of the shareholders with voting rights - A third meeting will be held with the same conditions, if the 2nd meeting doesn’t meet the quorum - Decisions of an extraordinary meeting will be passed by the vote of two thirds Decisions relating: to increase/decrease of capital, extension of company’s term, dissolution before expiry term, mergers or division of companies will only be valid if 75% of the shareholders with voting rights vote on it - The decision that must be registered with the commercial registrar must be registered within 15 days Effectiveness of GA Decisions – the decisions will be effective from the date of their issuance unless the law, AOA, or the decision has a specific start date Meeting minutes - The meeting minutes should show how many shareholders were there, either in person or represented by someone else, how many shares each person held, how many votes they had, what decisions were made, and how many votes were for or against those decisions. - They should also include a brief summary of what was discussed. After each meeting, these minutes should be written down in a special book and signed by the meeting’s leader Request for inspection of the company – a shareholder or more, representing at least 5% of the company’s capital, can ask the court to inspect the company if the conduct of board members or auditor is suspicious - After hearing the statements of board members & auditor, the court order for inspection at the expense of whoever complained - If the complaint is valid, the court can order precautionary measures and can call for a GA to make the necessary decisions - The court can also remove board members & auditors and assign a qualified person to supervise the management of the company, and can call for a GA to elect new board of directors Shares, debt instruments and sukuk issued by JSC – shares must be registered to the holder’s name, and if the shares are owned by several people, they can appoint one of them to represent them when exercising their rights and they will all be jointly liable for the obligations that arise from owning the shares - The AOA will determine the nominal value of the shares, and shares of the same type of class will have an equal nominal value - Shares can be split & merged into lower & higher nominal value - Shares can only be issued at a higher value than their nominal value - If the JSC is unlisted, they must give certificate of ownership Effect of subscription for shares - When someone subscribes to the shares, it means they’ve agreed to the company’s AOA and will follow any decisions made by all shareholders. This applies whether they’re at the meetings or not, and whether they agree with the decisions or not. Opp Types & classes of shares – there 3 types of shares 1. Ordinary 2. Preferred 3. Redeemable - However, the AOA can provide different types of shares and give certain rights/privileges or impose restriction on these shares - Shares of the same class will have equal rights & obligations The obligation to sell shares – - The majority shareholder have the right to force the minority to accept an offer from a serious buyer for purchasing all the company’s shares for the same price given to the majority & under the same conditions - The minority shareholders have the right to force the majority to ensure the sale of their shares (shares of minority) when the majority are selling, for the same price & under the same conditions Company losses – the company losses if the losses reach half of the issued capital then the company - The board of directors must, within 60 days of their knowledge announce the losses, and must within 180 days call for an extraordinary meeting to consider the continuation of the company and take measures to resolve the losses or to terminate the company it Methods of capital reduction – 1. Cancel some shares equal to the amount they want to lower 2. Reduce the nominal value of each share by getting rid of part of it, equal to the company’s loss 3. Reducing the nominal value of each share by either giving back part of the share’s nominal value to the shareholder or letting them off the hook for the unpaid amount of the share’s value 4. The company buys and then gets rid of some of its own shares, in proportion to the amount they want to lower *Before they can lower the capital, the Board of Directors has to prepare a statement explaining why they’re doing it, what the company’s obligations are, and how the lowering might affect those obligations. This statement has to be read out at the General Assembly Meeting. Limited Liability Company: is a company established by one or more natural or legal person and its liability is independent of the financial liability of each partner - Only the company will be responsible for the debts & obligations that arise out of the business, so neither the owner nor the partner will be held liable except, only up to their contribution One-person LLC – if the company is established by one person, the owner will have the power & authorities of the manager and board of directors, he can also appoint a manager to act as a legal representative MOA must include: * Name of partners * Name the company. * Headquarters. * Company’s Objectives * Capital and its division among partners * Management of company * Company’s term *Assigning equity stake *Methods of distributing profits/losses • When applying for incorporation, a statement where the owners agree to all the legal requirements of incorporation Appointment of LLC managers – it can be managed by one or more managers they can be either partners or third parties - Appointment of managers is under the MOA or Independent Contract Management of the company – The MOA or the partners will determine the method of management - The manager will represent the LLC Infront of the court, arbitration tribunals and third parties and he may authorize third parties to perform certain tasks - The company is liable for the manager’s acts that fall within the company’s objectives Vacancy of manager position – if the manager’s position is vacant, partner can appoint a new manager within 15 days of knowledge of vacancy - The auditor and the partners have the right to call a GA to appoint new manager Dismissal of manager – partners can dismiss managers, if the manager is one of the partners he cannot vote when it comes to his dismissal - Partners can go to court to request removal of manager GA General Assembly – the GA will be held based on the MOA, at least once a year, 6 months before the company’s financial year ends - Managers or auditor or partners can request the meeting, the notification must be sent 21 days before the meeting - The partners holding all the shares may hold the GA regardless of the prior conditions Partners rights and obligations – partners have the right to participate in discussions and voting, and have a number of votes based on the number of shares he has - Partners can authorize other partners to attend on their behalf unless if the AOA states otherwise - Non-managing partners can submit opinions to partners, and can request documents and records twice a year - Information must be confidential & must not cause damage to company or partner or they’ll be liable for damages Capital – capital will be mentioned in the MOA - If the equity shares is held by several people, the company can suspend their rights until they choose one to be the sole holder - The company can sell the equity shares on their behalf Distribution of profit – the GA will determine how profits are distributed to the partners after deduction if needed CH9 What is corporate governance: Spp - Set of systems, processes and principles which insure that a company is governed in the best interest of all stakeholders, its the system by which companies are directed and controlled. Its about promoting corporate fairness, transparency and accountability. What are the objectives of corporate governance: - Properly structured board capable of taking independent and objective decisions. - The board is balance as regards the representation of adequate number of non-executive and independent directors who will take care of their interests and well being of all the stakeholders. - The board adopts transparent procedures and practices and arrives at decisions on the strength of adequate information. - The board has an effective machinery to promote the concerns of stakeholders. - The board effectively and regularly monitors the functioning of the management team. - The board remains in effective control of the affairs of the company at all times. 54 FAR Advantages of corporate governance Disadvantages of corporate governance Enhanced performance Easily corruptible Family owned companies lose Without it, company tends to objectivity on business making be weak decisions due to the family’s financial investment Access to capital Cost of monitoring Investors use their resources and contacts to support the company monetarily. Better standards Better talent utilization Concept of corporate governance – fairness, honesty, responsibility, and independency Role of the Board of Directors: they’re responsible for articles of incorporation, bylaws and for the company’s affairs, sometimes they’re even required to represent shareholder & made decisions on their behalf Clap Fiduciary duties such as: 1. Duty of care 2. Duty of loyalty 3. Duty to act in good faith 4. Duty to promote success When directors are in a fiduciary relationship with the company they’re prohibited from doing any acts deemed prejudicial to the company. A director of a company purchased property which was his duty to acquire it for the company not for himself, thereafter he sold it to the company, it was held that the company was entitled to claim the profit that he had made out from that transaction, and that’s because he breached his fiduciary duties to the company where he shouldn’t let his personal interest conflict with his duty. Roith (company director), entered into a contract with the company for the purpose of providing a pension for his wife whenever he die, without taking into consideration whether the contract was for the benefit of the company. It was held; that the whole object of the contract wasn’t to be binding on the company as it was to benefit mrs. roith and not the company. Corporate governance regulations in KSA, Capital Market Authority (CMA): - Its the agency in charge of issuing regulations and instructions and insuring that all regulations and instructions are implemented properly. - The role of CMA is to regulate and develop Saudi companies by providing appropriate rules and regulations that contribute to increase investment and enhancing transparency and disclosure standards and to protect investors and dealers. - It's managed by a board that includes 5 members appointed by the prime minister. - These members are not allowed to engage in any commercial activities. Duties of the CMA: § To develop and regulate the Saudi Stock Market (Tadawul) and enhance appropriate standards and transactions. § To create greater security by protecting investors and the public from unfair practices which include fraud and manipulation. § To increase the efficiency of the market and transparency in transactions of securities. § To reduce the risks of transactions by developing suitable measures and standards. § To monitor all activities and transactions on the Saudi market. * Corporate governance was established by the board of CMA in 2006 and amended in 2010. * Saudi listed companies are required to disclose in the annual report the provisions that had been implemented and those which hadn’t been implemented and to explain the reasons for noncompliance. É The code (corporate governance) main parts: 1- Preliminary provisions, explaining and defining some terms associated with regulations. 2- highlights the rights of Shareholders and the General assembly. 3- reveals the disclosure and transparency related to a company’s policy. 4- introduces the board of director’s functions and responsibilities. 5- includes publication and coming into force and involves implementation. * Among corporate governance regulations, the board of directors and its committees are both considered as the first line of defense against incompetent management. Functions of the board of directors according to the code: - Approving the strategic scheme and main aim of the firm and supervising their implementation, which includes: 1- plans. 2- policies. 3- performance. 4- capital structure. 5- risks. 6- organizational and financial structure. - Represents the shareholders, even if a company sets up committees or delegate some of its powers to a 3rd party. Formation of the board of directors criteria: 1- Should contain at least 3 members and not more than 11. 2- The majority of the directors should be non-executive. 3- The chairman of the board of directors must not be conjoined with any executive position such as CEO. 4- The majority of the members should be fully independent. 5- The member of the board of directors shouldn’t act as a member of board of directors of more than 5 JSC at the same time. CMA’s phases of approaching to implement improved corporate governance: Phase One: publishing the CGR. Phase Two: educate market participants on how to apply the regulation. Phase Three: revision of the CGR, and possibly making parts or all of the regulation mandatory. We’re currently in phase two. What is Corporate Social Responsibility (CSR) – Corporate Social Responsibility (CSR) is when businesses voluntary choose to behave ethically and responsibly, taking into consideration how their actions affect society and the environment. Is CSR relevant in Saudi? – It has gained attention worldwide, but it’s limited in Saudi - Saudi companies in the oil and finance fields have been hesitant to adopt Corporate Social Responsibility (CSR) practices, but in recent years there has been more recognition of its importance and it’s because of Saudi Arabia’s 2030 vision, which is supported by the Saudi Government. The government has been promoting and highlighting social responsibility as fundamental aspects of the nation’s progress. - The government has made rules and guides to help businesses carry out CSR, the support helps them invest in sustainable businesses Benefits of CSR for Saudi companies – 1. Enhanced the corporate image: it makes their reputation better. When companies do things that are ethical and good for society, customers, investors, and people in general often see them in a better way, this can make people loyal to the brand & trust it more 2. Attracted investors & customers: Attracting Investors and Customers especially those who care about ethics and sustainability, to grow their customer base 3. Helped employee engagement and talent attraction: Employees usually feel good about working for companies that help society and the environment Article 278 – allows the Ministry of Commerce, or CMA for public companies, to make & issue the rules and steps for companies to take the CSR initiative. These rules are issued based on a decision by the council of ministers. CH10 Define Dissolution: refers to the closure of a business, ofter on voluntary terms of the owner, it requires the payment of all taxes and the subsequent closure of each of these tax accounts, its essential to close accounts as the business will be liable for tax filings. Define Liquidation: a process by which a company’s existence is brought to an end, its the normal result for dissolution. Its the inventory of the company’s assets. The company cannot operate any new obligation during the liquidation period. Liquidator role: is to sell all the company’s assets and pay off all the company’s debts to the creditors and members. Where its comes to and end formally on the instructions of the liquidator, where it struck off the companies register. Types of liquidation: 1. Voluntary or Compulsory liquidation: - Arises when the directors ask the shareholders to pass a resolution to liquidate. Where the ultimate decision lies with the stakeholders, with the guidance of the directors for the best interest of the company. 2. Compulsory liquidation: - The decision is taken from the stakeholders and placed in the hands of the court. Often insolvency isn’t a prerequisite to compulsory liquidation, injustice and inequity are also grounds for the court to order the compulsory liquidation. An an example the minority protection: where the court is satisfied that the company’s affairs are being conducted or the powers of the directors are being exercised in a manner that oppressive to any member where the court may order the compulsory liquidation of the company. This order may be made despite the existence of an alternative remedy. 3 shareholders ran a restaurant together, where they had years of experience in running restaurants where they worked together prior to forming the company, 2 of the shareholders fell out with the 3rd and removed him from the company’s board of directors. The 3rd shareholder sought them to have the company liquidated on the basis that he had been treated oppressively and unfairly. Held: the removal of the shareholder repudiated a relationship that was based on a mutual trust and was more to a partnership than a company, therefore the court felt that it was fair to lift the corporate veil and liquidate the company. Termination and liquidation of the company Examination of company’s financial position: 1- the managers of board members should decide to dissolve the company by preparing a statement confirming: - That they’ve examined the company’s situation/ - That the company’s assets are sufficient to pay off its debts at the end. - That the company is not insolvent. *Such statement should be presented within 30 days after preparing it, to the partners to decide to dissolve the company. 2- if the statement indicates: - That the company’s assets are not sufficient to pay off the debts. - Or that the company is insolvent in accordance with the bankruptcy law. * The partners may not decide to dissolve the company, otherwise they should become jointly liable for any debt. General reasons for termination of the company: - The expiration of its term, unless such a term is extended. - When they agree to dissolve the company. - When a final judgement that orders the dissolution. Liquidation of the company: 1- once the company has been terminated, it should under go liquidation, and the partners should initiate the liquidation procedures, and the company should retain the legal personality as needed to complete its liquidation activities. 2- if the company is terminated for any of the termination reasons, the partners should prepare the previous statement, unless the same has already been prepared and the period since the day of preparation didn’t exceed 30 days. 3- if its terminated and its assets are not sufficient to settle its debts, it should submit an application to the court to initiate liquidation proceedings. 4- if the company is liquidated in violation of the provisions of law, the partners should be jointly liable for any outstanding debt. 5- the public non-profit company may be liquidated only after obtaining prior approval of the ministry. The liquidation mechanism: Should be in accordance with the provisions of the law, unless the company’s AOA and MOA provides otherwise. Management of company during liquidation: 1- the authority of the company should put an end to their existence upon termination of the company. But they should remain in charge of the management of the company and should be deemed the liquidator to 3rd parties until the liquidator is appointed. 2- the company’s general assembly should continue to exist during the liquidation period and their role should be limited to exercising the functions that doesn’t conflict with the liquidator. 3- during the liquidation period, the partners should have the right to review the company’s necessary documents. Number of liquidators and liquidation period: the liquidation should be by one or more liquidator from among the partners or shareholders or 3rd parties. Liquidator appointment decision: 1- the liquidator should be appointed based on a resolution of the partners in accordance with the conditions governing the amendment of the company’s AOA or MOA, not later than 60 days after the termination date. If its not possible to appoint a liquidator during such a period, the same should be appointed by a decision of the court based on a request submitted by any of the partners. 2- the company’s termination is the result of its dissolution under a final court judgement, the liquidator should be appointed by a decision of a judge. 3- the judge should before issue the liquidator appointment decision order that the partners of the company submit the statement or submit the necessary data which proves that the company’s assets are sufficient to settle its debts and that the company is not insolvent not later than 30 days. If the judge is convinced he should take the necessary actions to initiate liquidation. 4- in all cases the liquidator appointment decision should include: - His powers and fees. - The restrictions imposed if any. - The period required for liquidation. Registration and announcement of liquidator appointment decision: The liquidator should register his appointment with the commercial registration office and it won’t be effective toward 3rd parties unless its registered and announced. Removal of the liquidator: 1- the liquidator should be removed in the same manner of its appointment, in all cases the judge may upon the request of any partner for acceptable reasons decide to remove the liquidator. 2- the decision of removing the liquidator should include: - The appointment or the replacement of the liquidator. - The details of its powers and fees.