TAX LAWYERS – Page 3

A CORPORATE GOVERNANCE MASTERCLASS FOR ENTREPRENEURS FROM THE HUMPHREY NZEYI v BoU CASE.

While shareholders own the company, they DO NOT own the assets of the company. The assets they own are the shares allotted to them. The company owns its assets. Conversely, the shareholders are not the managers of the company. They must first become directors in law for them to exercise managerial roles.

The directors(the Managers) owe a fiduciary duty to the company as ‘a whole’. This fiduciary duty requires directors to act in good faith and in the long-term interests of the entity, balancing the interests of both shareholders and creditors.

This is because the total assets of a company are composed of shareholder equity+liabilities (i.e. creditor interests). For the section of my readership without an accounting background, in law this is the starting point of the accounting equation. The company as a legal entity is therefore subject to these two competing legal(or equitable) claims.

The directors’ duty to act in the company’s best interests logically includes the obligation to weigh and balance these interests at all times.

When a company enters financial distress, the law demands that the board begin to prioritize the interests of creditors alongside those of shareholders and certain transactions are outright void at law in extreme circumstances where this principle is breached.

Good Corporate governance and Board composition matters. A competent, diverse board is better equipped to navigate financial stress and generally, the intricate market and regulatory dynamics in which the company operates. Ensure you have a blend of directors with expertise in risk, tax, legal, and operations as opposed to just investors, friends or family members.

AI’s Disruption of Professional Services: The Rise of Niche Expertise.

The market now favors firms and individuals who deeply understand specific domains or sectors rather than generalists trying to do everything. A “niche within a niche” allows consultants to become irreplaceable for a defined audience or challenge set.

AI may also have provided the easy answer to the all important career decision question for senior consultants and executives in larger legacy firms; Which is whether to choose boutique independence over the politics, processes, and layers of bureaucracy that come with being part of a large firm

Intersection of company law, taxation & insolvency; Corporate structure best practices

Corporate structure best practices for leveraged operations

A businessman who habitually takes on liabilities to finance capital requirements for his commercial activities ought to split those activities into different companies.

The sole purpose of trading through a company or companies is to trade with other people’s money, and so the thinner the capital the more advantageous from a commercial point of view and from a tax point of view. And so a smart businessman should be looking to separate key assets from the main trading activities by splitting the business.

The entity that borrows should be cash flow rich but asset poor. It is up to the banker/lender to protect itself through seeking guarantees or ordering a corporate reorganisation to curve risk before advancing large loans. But because the bulk of the bank’s work is done by non-lawyers, this hardly ever happens.

This opens up opportunities for the businessman to lay traps for the bank/lender and to open up escape routes for the business to fend off aggressive recovery if it ever gets to that point, and to get away through corporate law technicalities and in the meantime allow the business the much needed window to reorganise and mobilise funds to pay off debt before the business is taken down by the lender.