Suing the Company, Suing for the Company, Enforcing Director’s Duties

Abstract

One of the reasons for conferring a legal personality on a company was to make it able to sue and be sued in its own name. Consequently a company can be sued for a wrong perpetrated by it, either by a member or by a third party who has been aggrieved by the company’s action. Difficulties may sometimes arise when the capacity of the member to sue is in doubt (see the discussion of the articles as a contract in Chapter 5). As a general rule, however, where the wrong has been done to or by a company, the company can sue or be sued. Thus, if a director is in breach of his duties to the company, the company can sue him for redress. However, corporate personality causes problems as well as solving them. If the majority of the shares in a company are held by those controlling that company (and they often are) those controllers can perpetrate all kinds of wrongdoing to the detriment of the minority and then vote that the company should not take legal action to gain compensation. Suppose, for example, that a director sells to the company land worth £10,000. He and his cronies who together hold a majority of the shares in the company, pay £20,000 for the land. They then pass a resolution to the effect that the company should not take action to get back the money that has been taken unnecessarily from the company. The minority shareholders in the company have had the assets of the company diminished and thus the value of there shareholding in the company go down.