Company Law and Mac Stevenson - Essay Example

? Question one Introduction Companies are legal entities that have a separate personality apart from that of its members. Companies are in law legal personalities capable of enjoying some privileges an therefore can sue and be sued. There are various types and classes of companies, which are limited, unlimited no liability companies, and either large or small companies. Discussion The type and class of a company that will suit Mac Stevenson is a small no liability company. The no liability company is a company where the members have no liability to pay in case of its winding up. A no liability company must be a mining company with a company constitution stating its mining objectives1. In instances where calls are not met, the shares are forfeited. The main advantage of a no liability company is that the investor has a chance of pulling out if the company has no future. S 112(2) provides that a no liability company must be a mining company, which has a company constitution stating its objects in mining. The provision of section S 148(4) is that a no liability company must use “No liability” or “NL” at the end of the company's name. The no liability companies restricted to companies that have an object of mining only. The concept of no liability increases investment in the industry as it does not bind to its shareholders and they can withdraw from the company2. The difference between a no liability company and other companies is that a no liability company’s shareholders are not liable to pay calls on any unpaid shares. The conventional provision of companies is that the purchase of shares is a contract that is binding and shareholders bound to pay for the shares when there is a call. The position is that if the shareholder does not pay the share there is a forfeiture of the already paid up shares and the unpaid shares. The provision of a no liability company concerning the shares gives confidence investors in potentially uncertain mining undertaking. This is the reason because a shareholder who has unpaid shares can elect to pull out from the company without any legal penalties. In the case of Mac Stevenson, the best company would be a no liability company. The choice of a no liability company is because the mining ventures are uncertain and; therefore, investors are not willing to invest in such companies. The provisions of the no liability company tend to encourage investors into investing in mining companies. When there is uncertainty in the ventures of a company the investors would still be willing to buy the company shares. This is because they are not compelled to pay on making of calls to pay. The provisions of a no liability company fit this provision, as the shareholders who will purchase the share in the Mac Stevenson’s company will be more willing to invest in the venture. This is especially so since they are uncertain in the future of the company they will not be bound to pay the unpaid share if they will see no future for the company. The company will be a small company, according to 45A a company can be a large or a small company. Mac Stevenson’s company will fit into the small company. This is because it satisfies two of the criteria that are it should have gross operating revenue of less than $25m and its gross assets are less than $12.5m. Mac Stevenson’s company has operating revenue of less than $25m and its gross assets are not in excess of $12.5m, therefore, fits into the category of small business. On the other hand, Mac Stevenson can the can expand the business to install solar panels with the batteries3. However, the expansion cannot be done the any liability company as the provision of the no liability company restricts the operations of companies registered as no liability to only mining ventures and as such, they cannot operate other business dealings like installing solar panels4. The expansion realized when the company converts to a limited liability company. The general undertaking is that when a no liability mining company becomes successful it converts its type from a no liability company to a limited liability company. According to Act a limited liability company is a company that the liability of the members to contribute to gather for the debts of the limited company, in case of winding up, limited only to the amount remaining unpaid on their shares. The advantages of a limited liability company are that it is simpler for the company to raise shares and the investors quarantine the risk of a venture by the use of other assets. The liability of shareholders in this company is to pay the unpaid shares and the company must use limited at the end of its name. The conversion of the company from a no liability company does not create a new entity. The conversion changes the type of an already existing entity5. Conclusion The conversion from a no liability company is vital to Mac Stevenson since the provisions of a no liability company do not allow any other ventures other than the mining ventures. This provision of the no liability company is contrary to the desires of Mac Stevenson and, therefore, prudent to alter the mining company into a company which is limited in liability. The provisions of a limited liability company do not restrict the type of ventures carried out by the enterprise, and this fits the desires of Mac Stevenson. Question two Area of law Legal liability unsecured creditors Principles of law The issue in this case is whether the unsecured creditors can pierce the corporate veil. The law applicable in this scenario is that an incorporated company is a legal and separate entity from its directors and shareholders and as such, the owners are not solely liable for the company, but their liability restricted to their shareholding capacities. Application of the law The provision of section 124 is that it gives a company an equal legal ability to make agreement on its own behalf. This provision makes a company a legal entity in its own and distinct and separate from its members and capable of enjoying rights and duties6. In Solomon v Solomon, Solomon was a leather merchant and a boots manufacturer. He sold his company to another, Solomon Company that had seven members Solomon his wife four sons and a daughter. The shares of the company divided such that Solomon had 20,000 ordinary shares and debentures of 10,000 against the company. The rest of the members each had a share of one sterling pound. Later the company pushed into insolvency and finally wound up7. The issue before the court was whether Solomon was to have a priority before other creditors. The House of Lords found that Solomon and company were a distinct and separate legal entity from the owners and other legal entities. Solomon as a debenture holder of the company had a priority to the claim over the assets of the company before any other unsecured creditor. The court also stated that the issue of some of the shareholders to the company having shares, as a formality was immaterial because the process may be used to facilitate what was in outcome a single person business. The same position elaborated in the case of Macaura v Northern Assurance Company [1925] AC 619, where Macaura owned a timber company. He formed an estate company and sold all the timber by obtaining fully paid up shares of the other company he had sold the timber to, and was an unsecured creditor for 192, 000 pounds8. He took out an insurance policy in his own name against the property. After some time, a fire that broke out in the company gutted the timber down. Macaura claimed compensation for the lost timber. The House of Lords held that the timber destroyed was the company's property and did not belong to Macaura. Macaura, although, he held all the company shares, did not have any insurable interest in the company's property9. The House of Lords went ahead and stated that the same way a company has a limited liability separate from its member but belonging to the corporate body, it also implies that the assets of the company only belong to the company and not its members and as such, Macaura had no claim. Conclusion The position in the case of Tony is that Tony as a secured creditor has a priority claim over all the other creditors since the company and Tony are separate entities10. The fact that the company sold at an inflated price was immaterial as the registration process of a company does not stipulate the prices but the process of forming a company, and if all due process followed, then the other facts are immaterial as slated in the Act. The courts are reluctant to inquire into the intentions of directors of the company or its shareholders, and as such, the court is not likely to lift the corporate veil. Bibliography Autralia. 1897. The No-liability mining companies act, 1896 (60 Vict. no. 15).: Edited, with notes, cross references, and short chapters on the formation, management and winding-up of a no-liability company, and with a copious index, Hayes brothers. Hall, Root and Steve Koenig. 2006. The Small Business Start-Up Guide: A Surefire Blueprint to Successfully Launch Your Own Business, Sourcebooks Inc. Thomas, Rolin, Sir George Edward Rich and New south Wales laws. 1897. The No - Liability Mining Companies Act, 1896, (60 Vict. 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