Hell or high water contract

A contract that obligates a purchaser of a project's output to make cash payments to the project in all events, even if no product is offered for sale. It is a non-cancellable contract whereby the purchaser must make the specified payments to the seller, regardless of any difficulties they may encounter. 

It is a contract including a clause stating that payments must be made regardless of what happens. Specifically, a hell or high water contract requires one party to continue to receive payments even if an act of God prevents the contract from being completed. For example, suppose two parties sign a contract renting an apartment. The contract may contain a hell or high water clause saying that the renter must pay rent every month even if the apartment floods or burns down. It is also called a promise to pay contract.

Safe harbour rule

Safe harbour rule is a  legal concept whereby a person who has meet the required listed rules and requirements is protected from any adverse legal proceedings. It is a legal provision to reduce or eliminate liability as long as good faith is demonstrated.

Safe harbours tend to be applied where any legal restrictions and/or requirement are ambiguous and therefore carry a risk of being punished for a violation which was unintended.

Citi could face up to $3 billion in Lehman claims

Citigroup Inc could face up to $3 billion in claims from the bankruptcy proceedings of Lehman Brothers Holdings Inc , the third largest U.S. bank by assets said in a regulatory filing on Friday.

The trustee for Lehman under the Securities Investor Protection Act may seek to recover $1 billion that Citigroup took for clearing obligations for Lehman's broker-dealer subsidiary, the bank said in its annual report.

Lehman could also try to recover a $2 billion deposit it made with Citigroup in June 2008, before its collapse, the filing said.

Complete news.

Australia : ACCC To Review Woolworths Acquisition Of Cellarmasters

THE competition regulator will review the acquisition of Cellarmasters by supermarket chain Woolworths, said the ACCC .

Woolies chief Michael Luscombe is confident the Australian Competition and Consumer Commission will wave the deal through given Cellarmasters’ different operations.

When asked by media today if he expected any issues with the competition regulator, he said: “We are confident that we have bought a business that operates a totally separate channel to those we currently own.”

Woolies and its rival Coles already own a fair slice of the grog market.

The ACCC this morning confirmed it will investigate the deal and begin its review once it receives additional information from the parties.

Complete news.

Coercive Social Responsibility

The Parliamentary Standing Committee on Finance has proposed mandatory corporate social responsibility (CSR) by companies as part of changes to the Companies Bill, 2009.

It says every company having a net worth of 500 crore or more, or a turnover of 1,000 crore or more, or a net profit of 5 crore or more, during a year shall be required to spend every year at least 2% of the company's average net profit during the three immediately-preceding financial years, on CSR activities of the company's choosing.

If a company does not have adequate profit or is not in a position to spend the prescribed amount on CSR, the directors of such company are required to make a disclosure and give suitable reasons in their annual report, with a view to checking non-compliance.

Read more.

UK: First Company Convicted Of Corporate Manslaughter

Cotswold Geotechnical Holdings has  become the first company to be convicted of the new offence of corporate manslaughter under the Corporate Manslaughter and Corporate Homicide Act (2007).

For further information about the case see here.

U,S. : Chevron to pay $8 billion

A court in Ecuador's Amazon jungle has ordered Chevron to pay $8 billion in a closely-watched environmental lawsuit, but the U.S. oil company rejected the ruling as "illegitimate".

The highly controversial case has triggered related legal action in U.S. courts and international arbitration and is being monitored by the oil industry for precedents that could lead to other large claims.

Complete news.

India: MCA Grants Exemption From Attaching Subsidiary Accounts

Section 212 of the Companies Act, 1956 requires holding companies to attach with its balance sheet, a copy of the balance sheet, profit and loss account etc., of each of its subsidiaries. In recent years, with the globalization of the Indian economy, there has been a large increase in the number of holding companies and subsidiaries.

The Ministry of Corporate Affairs has been receiving a large number of applications seeking exemption from attaching the accounts of subsidiaries under Section 212(8) of the Companies Act, 1956. The matter was examined in the context of the globalizing Indian economy, the increased number of subsidiaries, and the introduction of accounting standards on consolidated financial statements. It has been decided to grant a general exemption provided certain conditions are fulfilled.The Central Government through General Circular No: 2 /2011 hereby directs that provisions of Section 212 shall not apply in relation to subsidiaries of those companies which fulfil the following conditions:-

(i) The Board of Directors of the Company has by resolution given consent for not attaching the balance sheet of the subsidiary concerned;

(ii) The company shall present in the annual report, the consolidated financial statements of holding company and all subsidiaries duly audited by its statutory auditors;

(iii) The consolidated financial statement shall be prepared in strict compliance with applicable Accounting Standards and, where applicable, Listing Agreement as prescribed by the Security and Exchange Board of India;

(iv) The company shall disclose in the consolidated balance sheet the following information in aggregate for each subsidiary including subsidiaries of subsidiaries:- (a) capital (b) reserves (c) total assets (d) total liabilities (e) details of investment (except in case of investment in the subsidiaries) (f) turnover (g) profit before taxation (h) provision for taxation (i) profit after taxation (j) proposed dividend;

(v) The holding company shall undertake in its annual report that annual accounts of the subsidiary companies and the related detailed information shall be made available to shareholders of the holding and subsidiary companies seeking such information at any point of time. The annual accounts of the subsidiary companies shall also be kept for inspection by any shareholders in the head office of the holding company and of the subsidiary companies concerned and a note to the above effect will be included in the annual report of the holding company. The holding company shall furnish a hard copy of details of accounts of subsidiaries to any shareholder on demand;

(vi) The holding as well as subsidiary companies in question shall regularly file such data to the various regulatory and Government authorities as may be required by them;

(vii) The company shall give Indian rupee equivalent of the figures given in foreign currency appearing in the accounts of the subsidiary companies along with exchange rate as on closing day of the financial year.

India : Insider Trading Looms Over Reliance Industries

The Securities and Exchange Board of India or Sebi could levy a record penalty on Reliance Industries (RIL), the country’s largest private sector company, if it is able to establish that the company was involved in insider trading.The regulator can impose a penalty of Rs 25 crore or three times the amount of profit a company made from insider trading, whichever is higher.

RIL made a profit of about Rs 500 crore from the sale of Reliance Petroleum shares. The potential penalty could thus be Rs 1,500 crore. A high penalty is possible because of the magnitude of the profit.

Complete news.

India: Tougher Voting Norms On Company Resolutions

Market regulator SEBI is proposing to the government to include a clause in the Companies Bill, which will bar shareholders of a company who have interest in a particular decision of the same company from voting in such special resolutions. The regulator also made ASBA (applications supported by blocked amount) compulsory for all non-retail investors (high-networth), corporate and institutional investors, in any public offer.

Read the press release of SEBI’s board meeting.

Distinction between company and other forms of organization (India)

In India, businesses mainly operate as sole proprietorships, partnerships and companies. Each of these business structures has its own advantages and shortcomings and is subject to different regulatory and tax regimes. The sole proprietorships have restrictions in the form of limited capital and other resources along with unlimited liability of the sole proprietor. The partnership form of business fails to recognize the difference between partnership and partners. It also restricts the maximum number of partners to ten, in case of banking business and twenty in case of other business and it imposes unlimited liability on each partner for acts committed by another and by partnership as a whole. The Limited Liability Partnership (LLP) form of business is an alternative to corporate form of business as it provides the benefits of limited liability of a company but allows its partners the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a partnership firm. This format would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular.

The private company form of business, by its articles of association, limits the number of its members to fifty (excluding the past and present employees of the company), restricts the right of its members to transfer its shares and prohibits an invitation to the public to subscribe to any shares in or the debentures of the company. Some of the differences of LLP with the traditional partnership and private limited company are given below:

POINT OF COMPARISON	LIMITED LIABILITY PARTNERSHIP	PARTNERSHIP	PRIVATE LIMITED COMPANY
Governance	The Limited Liability Partnership Act, 2008	The Indian Partnership Act, 1932	The Companies Act, 1956
Registration	Mandatory	Optional	Mandatory
Number of Members	Minimum: At least 2 partners Maximum: No Restriction	Minimum: At least 2 partners Maximum: 10 in case of banking business and 20 in case of other business	Minimum: At least 2 members Maximum: 50, excluding members who are or were in the employment of the company.
Body Corporate & Separate Legal Entity	It is a body corporate having a separate legal entity capable of suing and being sued in its own name	It is not a body corporate and does not have a separate legal entity.	It is a body corporate having a separate legal entity capable of suing and being sued in its own name
Name	Name to end with LLP	The firm, registered, shall use word (Registered) immediately after its name	Name to end with private limited
Liability of Partners	Liability of a Partner is limited to the extent of his capital as per the LLP Agreement, except in case of unauthorized acts, fraud and negligence of partner(s) when the delinquent partner will be personally liable.	Every Partner is liable jointly (with all the other partners) and severally for all acts of the firm done while he is a partner	Liability of the shareholder is limited to the extent of total amount due on shares subscribed
Minimum number of directors/ Designated Partners	Designated Partners: At least 2 and have DPIN	There is no concept of Designated Partners	Directors: At least 2 and have DIN
Management	By Partners/Designated Partners	By Partners	By Board of Directors
Incorporation Document	‘Incorporation Document’ is executed. LLP agreement governs the mutual rights and duties of partners of LLP.	Partnership deed	Memorandum & Articles of Association to be filed with Registrar of Companies. Table A applies in the absence of Articles.
Winding Up	The winding up of the LLP may be either voluntary or by the Tribunal to be established under the Companies Act, 1956. Till the Tribunal is established, the power in this regard has been given to the High Court.	A partnership firm can be wound up at any time by agreement	Company is created by law and can be wound up only through law

Characteristics of a Company

A company as an entity has several distinct features which together make it a unique organization. The following are the defining characteristics of a company:-

1.      Incorporated Association

The group of persons or association has to get themselves registered as a company under the Companies Act 1956(India).The Company comes into existence only when it receives the certificate of incorporation and the date mentioned on the certificate is a conclusive proof that company is incorporated and exist in the eyes of laws.

2.      Artificial Legal Person

A company is an artificial legal person created by a process other than natural birth. It is created by law and law alone can dissolve it. It is invisible, intangible, immortal but not fictitious. It is devoid of physical attributes like body, soul etc. of a natural person, but has certain rights and duties at law like a natural person. A company being an artificial legal person can do everything like a natural person except be sent to jail, take an oath, practice a learned profession or marry.

3.      Separate Legal Entity
On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, and borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately. Creditors of company are creditors of the company alone and they cannot directly proceed against the members personally.

The landmark case which established the concept of separate legal entity was of Salomon Vs Salomon & Co. Limited (1897).

The case of Salomon V. Salomon & Co., commonly referred to as the Salomon case, is both the foundational case and precedence for the doctrine of corporate personality and the judicial guide to lifting the corporate veil.

The House of Lords in the Salomon case affirmed the legal principle that, upon incorporation, a company is generally considered to be a new legal entity separate from its shareholders. The court did this in relation to what was essentially a one person Company, which is Mr. Salomon.

4.      Separate Property
The Company with its separate legal entity has the right to own and transfer the title to property in any way it likes. A member cannot claim to be the owner of the company's property during the existence of the company or in its winding up. A member does not even have an insurable interest in the property of the company.

5.      Perpetual Succession
A company is an artificial person created by law and law alone can dissolve it and bring an end to its life. Membership of a company may keep on changing from time to time but that does not affect life of the company. Death or insolvency of member does not affect the existence of the company. Even if all the members of a company die, the company does not cease to exist.

6.   Limited Liability
Mostly the companies are limited liability companies and the liability of its members is limited to the unpaid amount  on the shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets.  If the company is limited by guarantee, then the liability of the members extends to the amount each one has guaranteed to pay in the event of the winding up of the company. However, the Companies Act also provides formation of a company with unlimited liability, though companies with limited liabilities are most popular.

7.   Transferability of Shares
The shares of a public limited company are freely transferable and no permission from the company or other members is required to any member for selling their shares. However, in case of a private company, some restriction on the right to transfer shares is essential in its articles as per Section 3(1) (iii) of the Companies Act, 1956 (India).

8.   Common Seal
A company being an artificial person does not have any physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal.

The Company

The word ‘company’ is derived from the Latin words ‘Com’ i.e. with or together; and ‘Panis’ i.e. bread, and originally referred to an association of persons who took their meals together. A company is nothing but a group of persons who have come together or who have contributed money for some common person and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose.  Perhaps a clear definition of the company is given by Lord Justice Lindley : “By a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it in some trade or business, and who share the profit and loss as the case may be) arising there from. The common stock so contributed is denoted in money and is the capital of the company and the persons who contribute it, or to whom it belongs, are called as members. The proportion of capital to which each member is entitled is his share which is always transferable although the right to transfer them is more or less restricted”.

Chief Justice Marshall describes a corporation to be "an artificial being, invisible, intangible, and existing only in contemplation of law. Being the mere creature of law” continues the judge, “it possesses only those properties which the charter of its creation confers upon it, either expressly or as incidental to its very existence. These are such as are supposed best calculated to effect the object for which it was created. Among the most important are immortality, and if the expression may be allowed, individuality properties by which a perpetual succession of many persons are considered, as the same, and may act as the single individual. They enable a corporation to manage its own affairs, and to hold property without the perplexing intricacies, the hazardous and endless necessity of perpetual conveyance for the purpose of transmitting it from hand to hand. It is chiefly for the purpose of clothing bodies of men, in succession, with these qualities and capacities, that corporations were invented, and are in use."

A company thus may be define as an incorporated association which is an artificial person, having a separate legal entity, with a perpetual succession, a common seal, a common capital comprised of transferable shares and carrying limited liability. It is called an artificial person because of its very nature that law alone can give birth to a company and law alone can put it to an end.

UK: Judgement in Progress Property Company Limited v Moorgarth Group Limited case

The Supreme Court handed down its judgment today in Progress Property Company Limited v Moorgarth Group Limited [2010]. The issue involved in the case was whether the sale at undervalue of a company’s assets to its shareholder is ultra vires, in accordance with the common law rule, in circumstances where the director who procured the sale (acting on behalf of both the company and the shareholder) subjectively believed the sale to be at a proper market value.

The court unanimously held that the transaction in question was not an unlawful distribution and set out guidance in this regard.

See complete judgement here.

Bank of America Unit Settles Complaint on Municipal Bonds

Bank of America has agreed to pay $137 million to settle charges from the Securities and Exchange Commission and state and federal authorities related to its participation in a bid-rigging scheme in the municipal securities market as part of a continuing federal investigation.

The four-year old investigation has found “widespread corruption” in the markets for municipal reinvestments. In those markets, state and local governments and related entities take money that they have raised for public projects, temporarily parking it in securities like guaranteed investment contracts and repurchase agreements until the money was needed to pay for work done on the projects.

Complete news.

Court case over toilet paper dispenser

A Michigan woman says she can't work or crochet and her bowling game has suffered since her right hand was broken by a toilet paper dispenser in a restaurant bathroom.

The Michigan Supreme Court, in a 4-3 order, has refused to throw out Sheri Schooley's lawsuit against Texas Roadhouse in suburban Detroit. Liberal justices were in the majority in a decision that raises questions about what businesses need to do to protect themselves from liability in strange situations.

Schooley, 58, acknowledged it's a "bizarre story." She and her husband were out for dinner on New Year's Eve 2007 when she visited the restroom.

"I reached and the cover of the toilet paper dispenser fell down on my hand," the South Rockwood woman told The Associated Press on Monday. "It looked like the dispenser was up but it wasn't latched. At first I thought I was all right. I thought it was just bruised."

But the pain didn't fade, she said, and her husband had to cut her steak. When Schooley returned to work, she couldn't use a stapler. Diagnosis: broken bone.

Three years later, "I still cannot use the hand. I have no grip," said Schooley, who had to quit her job as an administrative assistant because she couldn't type.

Complete news.

Corporate governance: A sad tale

Indian Institute of Management-Ahmedabad don and ET columnist T T Rammohan made a telling critique of the functioning of independent directors on company boards on Dec 9.

Research shows that standard prescriptions to raise corporate governance have all failed: separation of the offices of the chairman and the CEO, having a quota of independent directors, having directors with domain knowledge, knowledge of finance and auditing, etc. Corporate governance, despite the best efforts of the regulators and policymakers, remains a check-the-box exercise.

Prof Rammohan then goes on to critique a solution offered by Harvard Business School senior lecturer Robert C Pozen, of making independent directorships a profession itself, and of reducing the size of the board to seven: the CEO and six independent directors. Four of them should have domain expertise, one should have expertise in accounting and only one should be generalist. But how can a director be expected to act in a truly independent manner when the remuneration and perks for his services are borne by the company?

In many instances, remuneration includes all-expenses paid holidays for self and spouse, loads of stock options and other goodies. What could, however, help is independent thinking and action by nominees of the institutions who have invested in the company, suggests Prof Rammohan. As Prof Rammohan points out, sincerity, commitment and willingness to rock the boat in the pursuit of management accountability to shareholders count more than knowledge and expertise.

Read more.

Apple Lawyers Up for Patent Showdowns With Nokia

Apple is squaring off this week against Nokia Oyj, the world’s largest mobile-phone maker, before the International Trade Commission. The dispute, in which each side alleges intellectual property violations, is also a precursor to Apple patent battles with Motorola Inc. and HTC Corp.

At stake is leadership in the U.S. smartphone market. Cupertino, California-based Apple is trying to protect its right to import the iPhone, while shutting out rivals, particularly those with devices powered by Google Inc.’s Android operating system, the world’s most popular smartphone software. Android- based phones also are made abroad.

Complete news.

Insider Trading on Wall Street

On November 22nd the Federal Bureau of Investigation (FBI) raided three hedge funds as part of a sweeping investigation into insider trading that could prove to be the largest that the industry has ever faced. Several well-known hedge funds, mutual funds and consulting firms have already been ensnared and the list of firms from which the government is demanding information continues to grow.

Complete report.

UK: Corporate Governance Guidance and Principles for Unlisted Companies

The Institute of Directors has published Corporate Governance Guidance and Principles for Unlisted Companies. This publication is a practical tool for the shareholders, directors and stakeholders of unlisted companies. The original pan-European edition of the guidance - Corporate Governance Guidance and Principles for Unlisted Companies in Europe - was published by the European Confederation of Directors’ Associations (ecoDa) in March 2010.

This IoD and ecoDa initiative offers a corporate governance agenda for unlisted companies in the UK.

• Unlisted companies make a major contribution to UK economic growth and employment. However, the corporate governance needs of unlisted companies have, to date, been relatively neglected by governance experts as well as by policy-makers. In particular, the UK Corporate Governance Code is primarily aimed at listed rather than unlisted enterprises.

• Many unlisted enterprises are owned and controlled by single individuals or families. Good corporate governance in this context is not primarily concerned with the relationship between boards and external shareholders (as in listed companies). Nor is it mainly about compliance with formal rules and regulations. Rather, it is about establishing a framework of company processes and attitudes that add value to the business, help build its reputation and ensure its long-term continuity and success.

• Good corporate governance is particularly important to the shareholders of unlisted companies. In most cases, such shareholders have limited ability to sell their ownership stakes, and are therefore committed to staying with the company for the medium to long term. This increases their dependence on good governance.

• Good governance can also play a crucial role in gaining the respect of key external stakeholders. In an environment of mounting societal scrutiny towards the business world, even unlisted companies have to devote attention to their stakeholder responsibilities. Corporate reputation will benefit from a gradually increasing transparency and accountability.

• An effective governance framework defines roles, responsibilities and an agreed distribution of power amongst shareholders, the board, management and other stakeholders. Especially in smaller companies, it is important to recognise that the company is not an extension of the personal property of the owner.

• This briefing provides guidance for unlisted companies on the issues involved in designing an appropriate corporate governance framework. It also presents a set of governance principles that can be followed or not. This remains a voluntary decision of each unlisted company.

• Fourteen principles of good governance are presented on the basis of a dynamic phased approach, which takes into account the degree of openness, size, complexity and level of maturity of individual enterprises. A dynamic approach towards governance is essential, since governance frameworks must evolve over the life cycle of a business.

• A key step in the development of unlisted company governance is the decision to invite external directors onto the board. Its effect on boardroom behaviour and culture should not be underestimated.

• The principles provide a governance roadmap for family owners or founder-entrepreneurs as they plan the development of their companies over the corporate life cycle. These principles may be relevant for subsidiary companies and joint ventures as well. Even state-owned companies or social enterprise organisations can be inspired by the best practices laid down here.

Complete report.