Question

Summary: CASE REVIEW ON COMMERCIAL COMPANIES A commercial company is a legal entity established under a contract by two or more persons each of whom undertakes to participate in an enterprise for profit, by contributing a share of the capital in the form of tangible or intangible property, services or labour, with a view to sharing any profit or loss resulting from the enterprise. Mr. Ahmed, Abdulrahman and Abdullah are Omani citizens, friends and graduate of MCBS. They are from royal families and they love playing computer game, soccer and golf. They joined the college in 1999 and graduated in 2002. After their graduation they travelled to the United Kingdom for greener pasture. Ahmed is married with three children, Abdulrahman with four children and Abdullah with six children. While in the UK, they support Manchester United Football Club and they always watch all their games. In 2010, they decided to come back home and start a company. After some preliminary discussion, they decided to register a Company Limited by shares with a share capital of one million Omani Riyal. In their contract, they were so confident that based on their experience and exposure, they are certainly going to make profit. They therefore agreed on a profit-sharing formula of fifty percent for Ahmed, thirty percent for Abdulrahman and twenty percent for Abdullah. Unfortunately, the business did not go as planned and they made huge loses of ten million Omani Riyal. Abdulrahman being the eldest has informed others that since he has four children and he is paying tuition for them in a private secondary school which is very expensive and couple with the fact that his wife is pregnant with set of triplets and they will need money to take care of their family expenses, he will not be able to contribute to the loss of the company. Ahmed and Abdullah have disagreed with him.

Question 1 a. Using FILAC method, raise and discuss one legal issue from the fact pattern. 25 Marks b. Would your answer in (a) be different if parties never agreed on the profit-sharing formula?

Answer 1

Question # 1.

Fact: They had registered the company under the Company limited by share under the company registration act and they had a profit-sharing agreement different from their share of capital.

Issue: Normally the profit is distributed among the shareholders according to their share in business capital.

Law: Each member is having liability limited to the share in capital, any losses above the capital limit will be borne by the business. Profit is shared between the shareholders as per their capital.

Analysis: They had their own contract for profit sharing therefore this contract but it maynot be valid for profit sharing. and can be challenged. The contract is silent on the sharing of the loss therefore the loss-sharing will be as per the limit of the share price they owned.

Conclusion: The legal issue is the deviation from the company limited by share registration act in terms of a profit-sharing agreement. But as they had a separate contract for profit sharing therefore they should have followed the same if there was profit. But in case of loss too the same contract should be seen valid and the lossess also should be distributed in similar ratio of profit rather than their share in capital.

Question 2. If they did not had a separate contract for profit sharing then in that case the losses would have shared as per their share in capital.