Lennox and Michael incorporated a private limited company with pre-emption rights,

bearing the name LM Company Limited in 2015.

LM Company Limited has been profitable since inception; however the last time the

Company paid dividends, was in 2017. The directors justified the non-payment of

dividends as being as a result of their expansion drive. The company has declared $5.0M

profit after tax in 2019. The board of directors has however decided to plough back all the

profit into the business for expansion purposes.

Dennis Smart, a preference shareholder of the company is very unhappy with the decision

and is insisting that part of the profit should be paid as dividends to the shareholders. He

feels strongly about his position and has threatened to take legal action if dividend

payments are not made.

In order to raise additional funds to support the expansion, Lennox has invited his three

friends Archie, Veronica and Blondie who are very rich, to purchase shares in the company.

He is planning to sell them ordinary shares, participating preference shares and cumulative

preference shares. To make the offer more attractive to his friends, he has guaranteed

that whether the company makes a profit or not, dividends will be paid to them semiannually over the next two years.

Using Common Law Principles and Statutory Provisions, advise Lennox on all legal issues

arising from the facts given.

(15 Marks)