Question 1

1. One of the major advantages often identified for a company is limitation of liability. With reference to this concept, describe its meaning and scope (4 marks), and explain two situations in which such limitation of liability may be neglected. (6 marks).
2. Anakin, Daala and Leia are the shareholders (in equal shares) and directors of Empire Pty Ltd, a property development company. The company does not have a constitution. Recently, board meetings have become difficult. Every time they disagree on any proposal, Leia claims that Anakin persuades vendors of land to lower their prices and that Daala and her team use sub-standard materials in construction while charging premium prices to purchasers. Both deny these allegations for which Leia has never produced any evidences. The tension in the meetings finally gets too much for Leia and she resigns as director. The others then want Leia to sell her shares to them in exchange for the return of her financial contribution to the establishment costs of the company.

Leia refuses announcing her intention to remain a shareholder and do all she can to increase public awareness of problems with the company and its management.

Required: either advise Anakin and Daala what they can and cannot do if they want to remove Leia as shareholder, or advise Leia if she wants to prevent Anakin and Daala removing her as shareholder. (15 marks)

Note: remember to give reasons and refer to legislation and cases, where relevant in your answer.