Management and Administration of a Company

Management and administration of a company (II): Shareholders and company meetings

1. Proper Plaintiff Principle

The company is the proper plaintiff to commence proceedings in respect of wrongs done to the company or infringement of legal rights of the company.

As directors owe their fiduciary duties of the company, it is for the company to institute the proceedings for breaches of fiduciary duties rather than individual shareholders. (prima facie)

• after shareholder contributed $, its the co’s $ ➔ co suffered becoz of misappropriation ➔ the person who suffered can sue and commence lawsuit ➔ co sue in own name and corporate character
• an individual shareholder X sue directors in the name of co ➔ separate legal person

1. Management Power (including power to commence proceedings in the name of the company) is vested in BOD — directors manage biz and affairs of co

      ➔ authorization from the board obtained? properly instituted by the co? bad directors wont sue himself

1. Shareholders can intervene and direct the BOD by passing special resolution

1. Statutory Derivative Action

A member (shareholder) can commence derivative action (start a lawsuit, step into proceedings tht co fails to diligently continue, discontinue or defend) for and on behalf of the co where there has been a misconduct (fraud, collusion, negligence, breach of duty, default in compliance wif any ordinance) to enforce the co’s rights. (exception to proper plaintiff rule)

It is necessary for the member to apply leave (permission) of the court.

• any of those proceedings must be brought in the name of and the relief must be sought on behalf of the company (any compensation will go to the co)
• a member can help the company to sue its subsidiary/associated co

The court may grant leave if ALL of the following requirements are satisfied.

1. On the face of the application, it appears to be in the interest of the co tht leave be granted

• not a high burden / X look in depth and detailed examination of factors
• factors: strength of co’s case in the proposed litigation, effect of the proposed litigation on co’s biz

➔ co has suffered significant losses and cud recover in the proposed action — helpful in recovering compensation so in the interest of the co for leave to be granted

➔ no only for economic losses — if theres a breach of directors’ duties by B — remedy mismgmt in co so may be in interest of co to sue

➔ if A’s disputes w/ B only involves a difference in opinion on the commercial merits of the txn (diff commercial decision and opinion among directors) — normal situation and not in interest of co to sue