Law of business association.Understanding company law - Case Study Example

? Law of business association Partnership Is John correct in assuring that a partnership has been created? What are the legal consequences of john establishing that a partnership has been created? It is correct for John to assume that he is in a partnership with Jenny. This is because John and Jenny instruct their solicitor to draw for them a partnership agreement. They suggest that the agreement should be drawn in the usual terms. This means that this partnership agreement will be in line with the partnership act of businesses operating in Australia. Further, they inform the solicitor that they are equal partners Partnership Act 1963 (ACT, section 6(1). John and Jenny are in partnership as the formation of a partnership requires a written or verbal agreement. This two people have a written agreement of partnership prepared by their solicitor. They open a joint account in which they use for the business transaction. This is not a requirement of a partnership. However, for the success of the business it is necessary to have a business account. A partnership is not a legal entity thus a business account will have to be a joint account of the members (Bentley v Craven (1853) 18 Beav 75; 52 ER 29). After a partnership formation, there are legal consequences. The liability of the partner is unlimited. This means that, in the case of Jenny and John they are responsible for the business debts. The recovery of business debts wills extend to the personal properties of the two partners. This will happen in the event that shares in the business are inadequate to cover business liabilities. This partnership between Jenny and John, it is jenny who involves in the day to day running of the business. Therefore, Jenny works as a general partner while John operates as a dormant partner. The two partners meet regularly to discuss the progress of the business. This means that John is aware of how the business if fairing on though he is not an active participant in its operation. John as a partner in this business is liable for the decisions that Jenny makes on a daily basis. If the business, incurs loses or profits the two partners will share them equally. The two partners have been sharing the proceeds of the business from time to time on an equal basis. They share the profits equally though Jenny works full time in the business and does not receive a salary while John works irregularly on weekends. This business is failing in its operation. In addition, the relationships between the two partners deteriorate. They decide to dissolve the business, and ask their solicitor to terminate the partnership. However, the two partners continue to operate the business much the same way as before dissolution. In effect, this implies that the partnership has not been dissolved. This is because, for a partnership to be dissolve the partners withdraw their shares and the business operation ceases (Lipton et al., 2012). Alternatively, the partners sell their shares and the business continues to operate, but as a new partnership. John had ordered for fixture and fitting for use in the business, in his own name but did not make payment for them. This he did in anticipation of the start of the business. The fixture and fitting have been in use, in this partnership business. John wants Jenny to participate in payment of this debt. Jenny declines, saying she has been working for the partnership without payment and that John should settle the debt (Lipton et al., 2012). Legally John and Jenny are in a partnership though they assume that they have dissolved. Accordingly then, they are both liable to make payment for this debt though its acquisition is in the name of John. This is because the fittings and furniture acquisition was for business purpose. The partnership act stipulates that debts incurred by a partner even without the knowledge of the other partner are the responsibility of all partners. Therefore, Jenny as a partner in business with John can be sued individually for this debt Partnership Act 1963 (ACT, section 8(1). During the period of the business partnership, Jenny took a lease for the premise of the business. She took this lease in her own name. However, according to the laws governing partnerships in Australia taking the lease using her name does not make the lease a personal property. The proceedings she is getting sub-letting of the premises should be shared between her and John. This is because partnership is an association of people with a common goal and the action of one person is binding to all partners. VCF Company In proceeding with the issue of shares and debentures, what will be the requirements in law that the company and its directors must meet? According to Corporations act 2001 s 283AA, the company and its directors have a legal obligation of appointing a trustee for debenture holders. As s 283AB of the corporations act asserts, the trust deed is to consist of the company responsibilities. The company directors must prepare relevant disclosures to the public. This practice conforms to the Corporations act s. 706 which requires prior lodgment of appropriate disclosure. Upon lodgment of the disclosures the directors will be responsible for availing a written consent. This is in accordance to the corporations act s.720. The disclosures provided to the public must contain appropriate statements, and must not skip any important content desired by the investing public. In case of inappropriate lodging of disclosure a replacement should be done by the company and appropriate measures performed in conformance with section 19 of the corporations act. The directors and the company should prepare to issue profile statements when required. The content of the statements should be appropriate and without infringement of any investors rights. This is a public company can raise finances through the sale of shares and debenture. The objective of raising funds is to finance a new technology by Julia who is a video conferencing technologist in the company. Julia believes that this technology holds a potential to make the business expand. Julia has secured the approval of the company’s board members on the raising of finances to support her invention. In Australia, corporate act regulates activities involving the raising of finances for companies. This company has to meet certain standards for it to be able to sell its financial products to the public (Lipton et al., 2012). The Australian Security & Investment Commission, which implements the corporate act, requires the company to provide disclosure documents. These are fund-raising documents for issue of securities. These documents provide potential investors with the relevant information about the company offering securities. The investors use this information as a guide in making investment decisions (Lipton et al., 2012). The case study does not tell whether the company is listed in the Australia stock exchange. The information provided says that the company is successful in it operation. For the purpose of this paper, I assume that the company is not listed. Therefore, for the company to have their shares quoted in the stock exchange the company will have to meet the criteria for admission to the official list and official quotation. The company should have proper structure and operation procedure that will meet the approval of the Australian Stock Exchange. The company directors are required to have lodged a prospectus to the Australian Security & Investment Commission. The company will have to satisfy the profit and security test that the Australian Stock Exchange will carry out. Fulfilling of this requirement by the company will allow the company to be listed in the stock exchange (Lipton et al., 2012). The objective of the company is to be able to sell their securities and raise finances. This means that the company has to meet the criteria for quotation in the stock exchange. The company must be compliant with the rules on the characteristics of securities. The company has to specify the nature of the securities as either the debt securities or the convertible debt securities. The requirement for the aggregate value of the debt securities is $ 10 million. After fulfilling these legal conditions of quotation, the company can now apply for quotation of their securities. These are the legal steps that the company and its directors will take in order to sell their share to the public. What legal liabilities might Julia and Joe incur if the company proceeds in accordance with the resolution of its board, and what might Julia and Joe do to safeguard themselves against incurring much liability? Julia and Joe are liable to legal consequences emanating from the corporations act s.283AA protects investors from unfair lodgment by corporations. The two persons can be sued if found in breach of the corporations act, especially if the disclosures to the public are inappropriate. Julia and Joe can safeguard themselves if they appoint a trustee in accordance to the assertions of the corporations act S.283AA. They must also ensure that the disclosures to the public are appropriate. The company wants to raise finances through shares and debentures. The people who will buy these companies shares will become shareholders to the company. To protect themselves from liabilities they should advertise for ordinary shares and not preferential shares. The ordinary share has no fixed rate of dividends on the company’s profits (Lipton et al., 2012). Therefore, the dividend that the company will issue to the holders of this share will be dependent on the profit that the business will make. Julia is positive about the potential of the new investment. If this technology yields high profits the investors in ordinary shares will benefit, on the other hand, if the investment returns are low the dividend to the shareholders will be small. In this way, the company will protect itself from the shocks of paying high fixed dividends on an investment that has low return (Lipton et al., 2012). This way both Joe and Julia’s concerns will have accommodation. The liability of this company is limited. In rising of the finances through securities, it is the company assets that will secure these loans. The company is a separate legal entity from its members. Therefore, in the event of liabilities recovery it is the company that will suffer the loss and not individual. The directors of the company accepted the raising of capital through share and debentures (Lipton et al., 2012). This means that any loss arising from this move will affect the company collectively. The investors in this company also have to bear the risk that goes with making of investment. The company discloses the information critical to investors in decision making. Therefore, the losses that may arise in the business transaction will be distributable to all shareholders (Hedgehog Golf Co Ltd, Re; Lantsbury v Hauser [2010] EWHC 390). Joe and Julia do not have a way of protecting themselves from incurring of liability of company decisions (Lipton et al., 2012). Watermark Company Have the directors of WSL contravened their legal duties as directors? What remedies may be open in the minority shareholder and are they likely to succeed in any legal action they may take? The directors of a company have a duty towards the company and its members. The board governs the operation of the company on a day to day basis. They should exercise their powers in ensuring that the company operates profitably. To achieve this board of directors establishes the broad policies and objectives of running the company. They select and review the performance of the executives of the company. The directors are accountable to the shareholders for the performance of the company. They approve annual budgets and ensure that an organization has sufficient finance to sustain its operation. It is in line with these duties that the directors of Watermark Company review the market demand for quality paper. The directors’ investigates the market demand of high quality paper and finds that it is declining. The objective of this company during its formation was to produce quality papers. The dynamism of the market brought a tough competition by large commercial paper producers. As a result, the original shareholder has reduced to 30%. The majority of the share holders of this company are the commercial paper manufacturers (Lipton et al., 2012). The board of director in a meeting is advising the shareholders that they should shift the operation of the company to commercial manufacturing. The majority of shareholder vote according to the recommendation of the directors. The minority shareholders feel that the company should continue the production of quality paper. They feel that the director of the company is contravening their duties by advocating for a change in policy for the operation of the business (Lipton et al., 2012). According to company regulation in Australia the director’s actions would be legally wrong if they were to make decisions without involving the shareholders, and informing them accordingly, (Re Colourhouse Ltd, Dalby vs Bodilly [2004] EHWC 3078 (Ch)). The director of this company uses the information they have in a proper way. The company has been operating in a competitive environment, but they have been managing the company without incurring debts. The interest of the director is to increase the profit margin of the business. It is in the light of this that they are seeking the mode of business operation of the business. Further in the power vested on them the directors have issued out more share to expand the finances of the company. The directors of this company are acting in utmost good faith of the company and its investors. The minority shareholders have feelings of dissatisfaction way the directors are managing the company. They feel there is no consideration of their interest by the directors of the company. Minority shareholders interest is crucial, but their founding should be in the general benefit of the company. Given that the directors of this company seem to be acting in good faith a solution to the dissatisfactions of the minority shareholder is necessary (Lipton et al., 2012). The remedy to the minority shareholder would be a consensus on how the company should operate. The director of the company should introduce commercial manufacturing, but maintain a small segment of the company production of high quality papers (Lipton et al., 2012). The marketing of high quality papers should be done in niche markets. The commercial papers should be for the general population. The company will be able to meet its objective of increasing profit. In addition, this will meet the interest of the minority shareholders. The minority shareholders will not succeed in taking of legal action against the director of the company. This is because the decision to change the policy of the company operation was done through a vote of a majority. Further, it is the duty of directors to come up with policies that will have financial benefit to the company. Legal action against the directors of the company is viable when they infringe on the personal rights of the minority shareholder (Lipton et al., 2012). In conclusion, the minority shareholders should agree to the change in operation or withdraw their share from the company. This is because the aim of operating a company is to make a profit. The current market trend show that quality paper demand is on the decline. Therefore, it is vital that the company operation change to production of papers that have a high demand. References Lipton, P., Herzberg, A., & Welsh, M. (2012). Understanding company law. Pyrmont, N.S.W: Thomson Reuters. Read More