Owing the Company - Case Study Example

? Julie, Jose, Anthony, and James own the company together. All act as a director. There was never a managing director appointed between the four of them. The one director James went on a vacation, and while on personal vacation met a woman named Frances. Frances wanted to sell James and the company the machine that would increase the production of the shoes manufactured by the company. The machine was to cost the company $500 thousand. When James returned, and spoke with his other partners, James explained about the machine, and the price of the machine. The other directors think the machine will cost the company too much money at this time, and the other partners are concerned that the company will be obligated to fulfill the contract. However, if a company enters into a contract of such there are certain limitations to how a company can enter into the contract, and make the contract a binding contract. As it is written with only James’ signature on the contract, and that the signature was not witnessed by anyone else the contract is not binding, and is considered null and void. There are only three ways a company can enter into a legal and binding contract. The contract can be signed with the seal of the company, or it can be signed without the official seal of the company. When the contract is signed without the official seal of the company the contract must be signed in the presence of two directors. The contract can be signed in the presence of one director, and a secretary of the company. In this case the contract was signed without the official seal of the company. The contract was signed while James was on vacation. The contract was not witnessed by any other director of the company. Because, James signed the contract the contract is believed to be legal and binding. However, the James was never named the official managing director. When James, Anthony, Jose, and Julie began the company all partners assumed the role of director. There was never a partner who was named managing director. All the partners at this company made decisions together based on lengthy discussions. The other directors involved were not informed of the decision made by James until after James had signed the contract. The other partners think the contract is too large an obligation for the company to assume at this time. James should have consulted the other partners prior to signing the contract. Because all partners have managed the company together, and have until this time made decisions together. James thought because the machine offered a way of increasing productivity by 20% that the machine will increase the company’s profits. The remaining partners are not convinced that the machine will increase productivity, and increase profits. If the machine does not increase productivity, and profits, then the company might become bankrupt over the obligation of paying for the machine. The other partners do not want this to occur. When James did not consult the other partners in the decision making, he did not follow company procedures. Because the partners of the company have always discussed important decisions like this, and made decisions together, internal procedures at the company were not followed. James should have discussed with the other partners his intentions to purchase the machine. However, James did not discuss his intentions of purchasing the machine with the other partners. The four partners have always discussed important expenditures like this, because James did not discuss with the other partners the machine, and this large purchase the company procedure was not being properly followed. Company procedure is that all partners must discuss important expenditures with one another, and make a decision about the purchase together. Because, company procedure was not followed the company will not be held responsible for the purchase. James was the principle in the agency principle method of signing a contract for a corporation. James was considered to be doing business with the agent of the machines manufacturer. The agent was also considered an outsider. The principle is assumed to be a managing director, or someone of authority to make company decisions like purchasing equipment that will increase the production at the business. The managing director always has the authority to enter into decisions such as this, and the company will become liable. However, because there is no managing director at this company James was not allowed to make the decision for the company without consulting the other directors. The person who signs a contract on behalf of a company needs to follow company procedures when signing the contract. The agent and outsider have no way of knowing the principle who signed the contract was following company procedures when signing the contract. The company procedures in this case were to speak to the other partners of the company. James did not speak to the other partners in the company therefore the company is not going to be held liable for the cost of the machine. If James would have discussed the purchasing decision with the other partners, and the other partners said the cost of the machine would be too much liability for the company to have at this time, and James proceeded to sign the contract regardless of what the other partners had said then the company would have been liable for the cost of the machine. This would mean that because James consulted with the other partners and purchased the machine after the other partners expressed they did not want to purchase the machine, James followed company procedure, and he talked to the other partners. Then the company would be liable. If one wants to asses this using the organic way. With the organic method of making a contract legal, and binding the managing director can make all decisions without consulting other members of the board of directors of the company. However, this company does not have a managing director. Therefore, James still could not have legally bound the company to the terms, and conditions of the contract. The terms, and the conditions of the contract are that the company will purchase the machine, and will make monthly payments toward the cost of the machine. When the other members of the board of directors found out the price of the machine the other board of directors, the partners in the company decided the liability of the machine would be too much of an obligation to assume at this time. The other members of the board of directors have consulted a legal expert to ensure the company is not financially liable for the cost of the machine. There is no managing director, all partners work together, and assume all important decisions together. When there is one partner who made a decision without consulting the remaining partners and the remaining partners think the cost of the machine is a little much for the company to assume at this time one might still assume the contract is legal and binding. However, because the remaining partners were not consulted the contract cannot be legal and binding to the company. The seller of the machine might attempt to make the contract a legal and binding contract, but the judge will not make the company take financial responsibility for the machine. The judge will render a verdict the contract is null and void in the condition it is in. Regardless of what way a judge will look at how this contract was made, the company’s common seal, organic, or an agency principle, a judge will render a verdict the contract is null and void. There is no official managing director. Only the official managing director can make a decision to enter into a contract on behalf of a company without consulting anyone else in the company. When all partners assume the role of managing director all partners must make the decision together. James did not follow company procedure with the agency principle method of entering into a contract on behalf of the company. With the agency principle method the acting principle for the company must follow company procedures when making important decisions on behalf of the company, and entering into a contract on behalf of the company. The company seal was not used when signing the contract. The contract was not singed in the presence of the two witnesses. When the seal is used the contract needs to be signed by two directors, or two directors, and one secretary. When the seal is not used there has to be two witnesses who watch the contract being signed. The witness can be two directors, or one director, and one secretary. If none of the above procedures are followed a contract for a company becomes null and void. None of the procedures above were followed in this case therefore the contract James signed on behalf of the company is null and void. The company is not going to be held liable for the purchase of the machine. Read More