Kai set up a business 5 years ago as a sole trader importing goods from Asia. Last year, he

wished to expand his business but needed more capital, therefore he involved his sister

Natalia and persuaded her to invest in his business. In order to do so, she insisted that the

business should be reorganised into a corporate structure and that she would then subscribe

for shares. Natalia also insisted that her two sons Harry and Erik should be appointed as

directors. Kai was content with this, therefore Oriental Trade Co Ltd. was incorporated with an

issued share capital of 100,001 shares at 1 each. Natalia subscribed for 50,000 shares and

paid 25,000 with the further 25,000 being left unpaid. Kai had his existing business valued

at 50,000 by independent experts and then sold the business to the newly incorporated

company in exchange for 50,000 1

shares. Kai's daughter Isabel subscribed for the remaining

1 share and paid 1. Kai, Harry and Erik were named as first directors.

Kai has been used to making all the decisions for the business in his own and he finds it difficult

to have Harry and Erik interfering all the time. He consults you as to his rights and

responsibilities in the company and wants to know in particular who is responsible for the

management of the company.

Which one of the following best summarises the correct advice?

A)

Kai and Natalia have the final say in all decisions concerning the management of the

company because they hold most of the shares.

B)

Kai, Harry and Erik are all responsible for the management of the company as they are all

directors.

C)

Kai, Harry and Erik are all responsible for the management of the company, subject to a

requirement to consult with the majority shareholders.

D)

Kai, Harry and Erik are all responsible for the management of the company in consultation

with all the shareholders. Because Kai is both a shareholder and a director, he would have the

final say on all decisions.