Techno-Corp. was authorized by its\' Articles to issue 200,000 shares of stock.

Question

Techno-Corp. was authorized by its' Articles to issue 200,000 shares of stock. Mallory bought 60,000 shares. Six of his associates bought 10,000 shares each. Forty investors who were not well known to Mallory bought 2000 shares each. Mallory thought of himself as an entrepreneur and considered the corporation to be "his business". He served as both President and Chairman of the Board. He and the six shareholders who owned 10,000 shares each made up the board of directors. Formal directors meetings were never held. Mallory believed that since he and the other directors owned a majority of the share s, there was no need to invite the other shareholders to the annual shareholders meetings which were held at Club Margarita --Mallory's favorite bar -- following an informal meeting of the directors. Mallory lived in an expensive beach estate in Montecito. Since he was having financial problems, he ordered the corporate treasurer to cover his mortgage payments from the corporation's account. His mortgage payments were $20,000 per month. Knowing that Techno-Corp's finances were also shaky, Mallory borrowed $1 million from Milhouse, a wealthy investor. The loan was in the corporation's name and was unsecured. Mallory did not inform Milhouse of Techno-Corp's financial problems. Mallory had express authority to borrow money for the corporation. Milhouse has been unable to obtain repayment of his loan from Techno-Corp. Will he be able to obtain repayment from anyone else? Explain

Explanation / Answer

In exercise of the powers and the requisite provisions, Company is considered as different from its shareholders. Members can excersice powers for the benefit of the company and perform task which are beneficial to the interest of the company.

Any act done by the Board or its members which are ultravirus the act makes such director or officer guilty for an offence with a fine or imprisonment.

The provisions regarding taking loan in the name of the corporation for the benefit of the corporation is justified. However any loan taken for the personal benefit using the powers given to the members makes such members personally liable.

Therefore, In the given case Techno corp. which has 200000 stock of authorized capital, in which majority i.e., Mallory has 120000 stock along with its associates, holding 60% of total stock. Also Mallory is President and Chairman of the corp., he has the authorized power to borrow.

But in the given case Mallory has not invited other shareholders to the board meeting and the loan borrowed is without any resolution and consent of the members.

Mallory spend the copr. Treasury for its personal benefit and for payment of its expensive Beach state. Hence Mallory is taking unadvantage benefit of the company.

Therefore in the given Mallory will be held personally liable for the repayment of loan as it was acquired without the consent of the other members and no resolution as required in the general meeting was passed for the same.

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