Reference no: EM132532889

CocoaTea Ltd was incorporated as a private limited company in November 2010 and has issued 500,000 shares, all with a nominal value of $1 each. The Company's two Directors, Cayline and Robin, each own 100,000 shares. Tino, a local businessman, owns 200,000 shares and the remaining 100,000 shares are owned by a number of local investors.

Since it was incorporated, the company has run at a loss and has never made a profit. Tino believes that this is due to Cayline and Robin's poor management of the Company. He also believes that, with new management, the Company could be extremely profitable. He therefore starts buying from the local investors the shares that they hold in CocoaTea Ltd with a view to voting Cayline and Robin out of Office.

Cayline and Robin discover Tino's plan. Accordingly, they caused the Company to issue 300,000 new shares and offer to sell them to their friend, Gabrielle. However, Gabrielle cannot afford to buy these shares, but she does offer to sell her car to CocoaTea Ltd as part-payment for the shares. The car is only worth $250, 000 but Cayline and Robin accept the car as part-payment providing that Gabrielle uses the voting rights attached to her shares to defeat any resolution that aims to remove Cayline and Robin from Office. The remaining payment comes in the form of $50,000 which Gabrielle loans from CocoaTea Ltd.

Tino, realizing that his scheme to oust Cayline and Robin has failed, wishes to sell his shares, but he cannot find a buyer. Cayline tells Tino the CocoaTea Ltd will purchase the shares. By now, Tino has 250,000 shares and he agrees to sell them to CocoaTea Ltd. The Company purchases the shares and they are duly cancelled. Having rid themselves of the troublesome Tino, Cayline and Robin recommend that a dividend be paid at a rate of 10 cents per share. Gabrielle agrees and between them, the dividend is declared and paid out.

Provide detailed discussions based on established legal principles to advise the Parties above on the following:

1. Whether Cayline and Robin's actions to issue new shares to Gabrielle was lawful?

2. Whether there was a valid payment of the shares by Gabrielle??

3. In what circumstances can a company purchase its own shares and whether a legal purchase was made of Tino's shares???????

4. Whether there was a lawful payment of dividends????