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company to invite the capital of 5000 pounds divided into 5000 shares of 1 pound each. The 237 July 2015 www.fb.com/studycpa owners of the two cinemas offered the directors a lease but required personal guarantees from the Directors for the payment of rent unless the capital of the subsidiary company was fully paid up. The directors did not wish to give personal guarantees. They made arrangements whereby the holding company subscribed for 2000 shares and the remaining shares were taken up by the directors and their friends. The holding company was unable to subscribe for more than 2000 shares. Eventually the company‘s undertakings were sold by selling all the shares in the company and subsidiary and on each share the Directors made a profit of slightly more than two pounds. After ownership had changed the new shareholders brought an action against the directors for the recovery of profits made by them during the sale. The court held that the company as it was then constituted was entitled to recover the profits
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