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Case Study Business Organisations and Relationships Constitution Minority Shareholders: Tony
Oppose to investigation Majority Shareholders: Joe& Jill
Interested in international expansion Board of Directors With reference to S127 Meaning of board in the companies act 1993:
In this Act, the terms board and board of directors, in relation to a company, mean—
(a) directors of the company who number not less than the required quorum acting together as a board of directors; or
(b) if the company has only 1 director, that director. S126 of the companies act 1993 defines the meaning of director and S131 clarifies the duty of directors to act in good faith and in best interests of the company.
Directors cannot include in a constitution capacity and powers which exceeds that of the companies act 1993 (i.e. no one is above the law). 1. Constitution
3. International expansion
4. Growth strategy
5. Change in structure
6. Niche market
8. Board of directors
11. Management decisions
12. Level of service
13. Business aptitude
14. Legal aptitude List of issues identified Constitution
Board of directors
Directors Legal issues:
list of legal terminology as related to our case From the facts presented in the case, we would question the level of legal consultation engaged:
(a) when Marrow Gardens Ltd was originally created and
(b) as part of the takeover of Maxim when Tony was invited to be a company director and given 30% shareholding. Legal Aptitude
Under the classification of law in New Zealand the subject of our case study, Marrow Gardens Ltd is defined as a private company subject to Private (civil) law e.g. Law relating to interactions and dispute resolution between individuals, including companies.
Initially Marrow Gardens Ltd was a registered company with two directors Joe and Jill Tarrow, both were 100% shareholders.
Purchase of a small company, Maxim Ltd introduced Tony Tan as a 30% shareholder and third Director of Marrow Gardens Ltd.
Marrow Gardens Ltd is subject to the NZ companies act 1993 Law Classification Application of NZ companies law to Marrow Gardens case About Marrow Gardens Ltd Industry Marrow Gardens Ltd delivers
garden supplies and accessories,
designing parks and reserves for local councils
Maxim Ltd delivers
Garden accessories( sculptures, water features and cobblestones)
Marrow Gardens Ltd purchased Maxim Ltd as part of the company's growth strategy. Joe manages small teams around pest management plans and final approvals for parks and reserves.
Jill approves landscapes. Tony is an artist passionate about garden sculptures. Joe& Jill adopted a constitution that specified that a 75% majority in general meeting was required for any takeover, international expansion or change in structure. Team Members Imran Sonia Rageshree Anh Hitanshu Jie Kiran A constitution essentially sets out
duties of the company, the board, each director, each shareholder.
The companies act 1993 contains a standard constitution. Companies do not have to setup their own constitution.
With reference to S30 Contents of constitution of the companies act 1993,
Subject to section 16(2), the constitution of a company may contain—
(a) matters contemplated by this Act for inclusion in the constitution of a company:
(b) such other matters as the company wishes to include in its constitution. Application of Constitution With reference to S96 meaning of shareholder in the companies act 1993:
In this Act, the term shareholder, in relation to a company, means—
(a) a person whose name is entered in the share register as the holder for the time being of 1 or more shares in the company. Shareholders Application of law - Shareholders Marrow Gardens have three shareholders
Joe and Jill (70%)
Tony (30%) The three directors on the board are responsible for business performance. Directors Application of law - Directors Conflict among the Marrow Gardens board members with regards to company's growth and international expansion. Our Group's Opinion There was no need to offer directorship, 30% shareholding was sufficient.
With reference to S37.2, Tony’s voting rights should have been restricted.
Formation of the constitution should have been amended to favour Joe & Jill by
a) reducing the majority vote to less than or equal to 70% or
b) at purchase of Maxim the percentage of shares offered to Tony should have been limited to 24% maximum or
c) purchase of Maxim company should have been as a subsidiary to Marrow Garden Holdings Co. with Tony as the Director of the subsidiary. Resolution of current issues: 1. Assuming the company’s long term business strategy includes international expansion, the existing company principles should be updated i.e. to include expansion and growth in international markets so that Tony is bound to deliver the company’s vision. a) Company's long term strategy is updated by majority Director vote.
b) Then an external market analysis and feasibility of business plan needs to be developed by Joe and Jill to know the viability of the venture. A more structured business case needs to be presented to gain Tony’s commitment in the business expansion overseas.
c) If Tony continues to work within his self interests, he contravenes S131 “Duty of directors to act in good faith and in best interests of the company”. Recommendation: 2. Removal of Director by ordinary resolution according to S156 of the companies act 1993.
It is recommended to remove Tony from the Director role
a) in order to effectively monitor his performance and management capabilities. 1. Law classification
2. Legal structure of companies in NZ
3. Application of NZ companies law to Marrow Gardens’s case
4. About Marrow Gardens Ltd
5. List of issues identified
6. Legal issues
7. Application of legal issues with reference to NZ Law
9. Resolutions Overview of the presentation
Marrow Gardens Ltd is a registered company. Legal structure of companies in NZ Resolution of current issues: Acquisition of shares - S 58, 59, 60
The board may make an offer under subsection (1) only if it has previously resolved—
(a) that the acquisition in question is in the best interests of the company; and
(b) that the terms of the offer and the consideration offered for the shares are fair and reasonable to the company; and
(c) that it is not aware of any information that will not be disclosed to shareholders—
(i) which is material to an assessment of the value of the shares; and
(ii) as a result of which the terms of the offer and consideration offered for the shares are unfair to shareholders accepting the offer. Resolution of current issues: All of them lack business sense
across the business functions Application of law- Board of directors