Monday 29 January 2024
Dear Subscriber,
I hope you had a great weekend. Please see below for the question, the answer to the previous question and associated resources. This is the web version of this newsletter.
Question:
XYZ Plc is a public limited company that wants to raise additional capital by issuing new shares to the general public. Which of the following statements best describes the process of issuing new shares in a public limited company?
- The company can issue new shares to any individual or entity without any restrictions or approvals.
- The company only needs to obtain the approval from its existing shareholders to issue new shares.
- The company can issue new shares without any formalities as long as it complies with the relevant legal provisions.
- The company must submit a prospectus to the regulatory authority and obtain permission to offer the new shares.
- The company can issue new shares only to its directors and employees as part of an employee share scheme.
Top Tip: To learn more about shares and shareholders listen to the podcast linked here.
Relevant Reading: For a relevant text see ReviseSQE Business Law and Practice. You can obtain the text* by following this link.
Answer and feedback to last week’s question: XYZ Ltd is a public limited company operating in the fashion retail industry. The company has recently experienced a significant decrease in its share price, due to concerns about human rights abuses in its supply chain, leading to concerns among its shareholders. One of the shareholders is considering taking legal action against the company’s directors for alleged mismanagement. Which of the following legal principles is relevant to the shareholder’s ability to bring a claim against the directors?
- Fiduciary duty.
- Statutory duty of care.
- The rule in Foss v Harbottle.
- Business judgment rule.
- The ultra vires doctrine.
The correct answer is 1: fiduciary duty. Shareholders have a right to hold company directors accountable for their actions, particularly if they believe the directors have breached their legal obligations. One of the key legal principles relevant to the shareholder’s ability to bring a claim against the directors relates to breaches of their fiduciary duties. A fiduciary duty is a fundamental duty imposed on directors to act in the best interests of the company and its shareholders. It requires directors to exercise their powers and perform their duties with honesty, loyalty, and good faith. Directors must prioritize the interests of the company and its shareholders above their personal interests or the interests of any other party. If a shareholder believes that the directors have breached their fiduciary duty by engaging in mismanagement or acting in a manner detrimental to the company, they may have the right to bring a legal claim against the directors. Such claims often involve allegations of negligence, conflicts of interest, self-dealing, or improper use of corporate assets. The vehicle for such actions is a derivative action (the shareholder initiates an action to defend company interests).
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You will hear from me again soon.
All the best
Dr Ioannis Glinavos
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