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Alex J.
Alex J., Solicitor
Category: Law
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Experience:  Solicitors 2 years plus PQE
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Can a company Chairperson decided if the company can set up

Resolved Question:

Can a company Chairperson decided if the company can set up a sister company by emailing the directors and giving them 2 days notice to decide if they want to sit on its board.

Can he refuse to call a board meeting and go ahead with the company if one member has asked for it to be discussed at a meeting
Submitted: 3 years ago.
Category: Law
Expert:  Alex J. replied 3 years ago.
Hi,

Thank you for your question and welcome.

My name is XXXXX XXXXX I will assist you.

Who will own the company? Will it be owned by the shareholders of the current company or will it be a subsidiary of the current company?

Kind regards

AJ
Customer: replied 3 years ago.

Background - We agreed to change the name of the company at an EGM, but, as it is a community and voluntary organisation with charitable status we were told by the chair that it became a mindfield and setting up a new sister company was the best option - thats when we received notice by email to opt into becoming a member of the new company


 


I requested a directors meeting to discuss this and he refused saying no, he was going ahead regardless of my concerns and we if we opted in would be responsible for the new company - Can that process by right and legal?

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

Technically the new company will have nothing to do with the old company save that it will have the same directors and same members (potentially).

What this director is potentially doing is being guilty of not acting in the best interests of the company and diverting its goodwill to a new company. The director concerned could be in breach of these duties under S.172, S.174 and S.175 of the Companies Act 2006.

To answer your question, strictly no directors meeting needs to be held for this but, you will need the permission of the shareholders to transfer the company's good will to a new company and really the director should step down as a director of the old company or at least seek shareholder approval for his/her actions.

Kind regards

AJ
Customer: replied 3 years ago.

There are no shares within the company - it is 100% charity and funded


 


My question is - is it legal for him to decide that we as one company set up a sister company with the directors having full legal responsibilities in the format of an email and not through a directors meeting

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

You cannot impose legal responsibility on to some as a director without their consent. If he sets up another company that no one consents to it will be his responsibility only.

Even if it is a charity, it will probably a company limited by guarantee, which is a company that does not have a share capital.

Kind regards

AJ
Customer: replied 3 years ago.

Yes but can he decide to set up a new sister company from his position as chair without the full consent of the board or through a board meeting - can he do that under the theme of the current company or should he do that as a totally separate company -


 


the issue is - the company cant access funding in its current form as it is 100% funded so therefore they need another company set up to access funding and as a matter of urgency he is going ahead to set this up


 


 

Expert:  Alex J. replied 3 years ago.
Hi,

Thank you.

If he sets up the company without the consent of the board, then it is his own action he will be personally responsible for the new company. If he proceeds to do it in the name of the old company without a proper board resolution and consent then he will be in breach of his duty to act in the best interests of the company and could be removed as a director or held personally liable for any damage caused.

If he set the company up without consent then he has no authority to act in the name of the old company.

Kind regards

AJ
Alex J. and other Law Specialists are ready to help you
Customer: replied 3 years ago.

Thank you - it may have got me a while to explain this properly - thank you for bearing with me.

Expert:  Alex J. replied 3 years ago.
Hi,

No problem.

Company administration is far from straight forward so I am happy to discuss any points you have further.

I wish you the best of luck.

Kind regards

AJ