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Decide whether these statements are true or false.




1. The writer maintains that it is unrealistic to expect a partner to be fully

informed at all times about the activities of the other partners in the company.

2. The text states that in an LLP, a company director is not liable for breaches of duty or mistakes made when carrying out his responsibilities.

3. The writer implies that large LLPs will be exempt from the more complicated accounting requirements set forth in the Companies Act of 1985.

4. The article claims that it is likely that the limited liability provided by an LLP will be restricted.

 

13 Do you agree that the LLP is long overdue? In your view, is there also a need for such an institution in your jurisdiction?

Reading 4: Corporate governance

Lawyers often assist their clients in handling legal disputes involving corporate

governance. The following legal opinion addresses one such dispute.

 

14 Read the first three paragraphs. What does the dispute specifically involve?

 

  Re: Special shareholders’ meeting of Longfellow Inc.
  I have now had an opportunity to research the law on this point and I can provide you
  with the following opinion.
  Firstly, to summarise the facts of the case, a group of shareholders of Longfellow Inc.
  has filed an action in the district court seeking to set aside the election of the board of
directors on the grounds that the shareholders’ meeting at which they were elected was
  held less than a year after the last such meeting.
  The bylaws of the company state that the annual shareholders’ meeting for the election
  of directors be held at such time each year as the board of directors determines, but
  not later than the fourth Wednesday in July. In 2001, the meeting was held on July
18th. At the discretion of the board, in 2002 the meeting was held on March 20th.
  The issue in this case is whether the bylaws provide that no election of directors for the
  ensuing year can be held unless a full year has passed since the previous annual
  election meeting.
  The law in this jurisdiction requires an ‘annual’ election of the directors for the ensuing
‘year’. However, we have not found any cases or interpretation of this law which
  determine the issue of whether the law precludes the holding of an election until a full
  year has passed. The statutes give wide leeway to the board of directors in conducting
  the affairs of the company. I believe that it is unlikely that a court will create such a
  restriction where the legislature has not specifically done so.
However, this matter is complicated somewhat by the fact that there is currently a proxy
  fight underway in the company. The shareholders who filed suit are also alleging that
  the early meeting was part of a strategy on the part of the directors to obstruct the
  anticipated proxy contest and to keep these shareholders from gaining representation
  on the board of directors. It is possible that the court will take this into consideration
and hold that the purpose in calling an early meeting was to improperly keep
  themselves in office. The court might then hold that, despite the fact that no statute or
  bylaw was violated, the election is invalid on a general legal theory that the directors
  have an obligation to act in good faith. Nevertheless, courts are usually reluctant to
  second-guess the actions of boards of directors or to play the role of an appellate body
for shareholders unhappy with the business decisions of the board. Only where there is
  a clear and serious breach of the directors’ duty to act in good faith will a court step in
  and overturn the decision. The facts in this case simply do not justify such court action
  and I therefore conclude that it is unlikely that the shareholders will prevail.

 






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