Company & Partnership Law - Assignment Example

Name: Tutor: Title: Company and Partnership Law Course: Date: Introduction Companies that develop and survive in the legal relationships, take into consideration issues that concern the legal personality. It becomes arguable that since companies are subjected to the statutory requirements, therefore, human agents play a great role in fostering legal relations. As a result, companies are managed by designated officers that are assigned with duties to monitor and evaluate legal requirements to enhance their corporate governance. Generally, directors and other officers appointed by him or her are entrusted with such duties. The corporations Act also have imposed various duties and obligations expected of the directed to a different person that may not be endorsed by the director, but works in capacity of the director (lip). Section 124 of the Corporations Act 2001, provides that companies are separate legal entities which lead to a question on how companies make contracts with the outsiders1. Question 1: Essay In regard to question raised on a case where company contracts with outsiders, it was should be held that the managing director of that particular company has the power to either endorse the contract or appoint someone else in the company as authorized person to approve the contract. The statement can be examined by considering the legal issues of Corporations Act, specifically on the duty and obligations executed by the managing director in a company in regard to contracting with outsiders or third parties. In a case where Annie made a contract with Funky Games Pty Ltd as an individual director, and thus she did not have the ostensible power to do so. It was held that the board required having a collective discussion to reach an agreement before entering a contract with the outsiders. As a result, it was considered that the board of directors at Positive Computer Games Pty Ltd failed to collectively enter the contract with Funky Games Pty Ltd, except Annie. This is simply because Annie was not officially endorsed to the managing director’s position by the board. Furthermore, Annie had not been delegated with the management powers. In this case, Annie acted beyond required scope of her powers. Although Annie is considered as a director, it can be argued that her actions are related to the managing directors. Based on the legal reasoning ideological point of view, it is relevant to argue that Annie could be held by the Positive Computer Games Company as the managing director despite the fact that the board had not yet made any decision to hinder her from assuming the role of a managing director. Therefore, Funky Games Pty Ltd can ably argue that they heavily relied on the authority of Annie executed as a managing director. In such a case, Positive Computer Games Ltd would consider making more contracts with Funky Games Pty Ltd. Basically Positive Computer Games Company was not bound by the acts of Annie-their agent since her actions were beyond the company’s authority. Annie as the third party to Funky Games Pty Ltd should have acknowledged the requirements of Positive Computer Games Company’s constitution2. In section 126 of Corporations Act 2001, it has been provided that a different employee can be entrusted with obligation to approve the contract on behalf of the managing director. This clearly indicates that a person to act in place of the managing director can be endorsed under the law of Agency to acquire the legal power to make the contract. However, individuals acting as managing directors of companies must comply with the requirements of Corporations Act when making the contract, for instance, exercise the principle of care and diligence, disclose certain interests, avoid improper use of the position and information as well as act in the good faith for the right purpose. Section 182 of Corporations Act, provides that directors as well as other officers of companies that their powers and discharges are implemented in good faith and in the best interest of the company with a focus on the proper purpose. This implies that such individuals are not required to misuse their positions to again advantage for their own interests or cause detriment to the company3. Question 2: Problem solving on disclosure document Incidences of the sanctions for non- or inaccurate disclosure, raises legal issues of concern about the disclosure obligation that issuers are subjected to. Therefore, it is important to consider the rules as the requiring disclosure based on the Corporations Act disclosure document particularly the prospectuses and fund-raising sections4. A Case with Super and Duper a manufacturing firm specialized in the machinery components involved in a successful partnership for over years. Super a clever inventor has developed a prototype system to streamline part of the manufacturing processes. However, the firm lacks $ 12m more capital needed to market the recently discovered invention. Super and Duper, therefore, decided to form a public company to enable them obtain the required documents. In order to attract a number of sub-scribers, Super and Duper made an agreement with I.M. Rich, a well-known inventor to sanction their project. Rich stated in the disclosure document that the new and exciting development would revolutionize various manufacturing processes, and thus should be expected to generate a considerable profit the firm. Additionally, the prospectus stated that the funds raised through the share issue would be used to expand as well as market the newly developed product. This information was considered satisfactory since the requirements of a disclosure document were fulfilled. The document was lodged with the ASIC as well as registered with Super and Duper, a friend and three directors. The business attracted a number of shareholders who subscribed and invested in the shares which boosted the growth of the firm. At some point later, Super and Duper opted to transfer the partnership business inclusive of the company’s premises. The subscribers’ funds were instead used to cover for the premise contrasting with how it was initially agreed in the prospectus document, transaction that was not mentioned in the disclosure document or to the shareholders. Furthermore, the funds paid by subscribers are used to clear off debts worthy $800,000 that was owed by the partnership. Finally, the invention failed, exposing the company to extensive losses. In this regard, the shareholders seek advice on how to handle the situation. The above case of Super and Duper, Rich and shareholders raises issues of legal concerns related to companies and partnership laws. Based on the issue of clear, concise and effective, section 715 of Corporation Act 2001 (Cth), states that a disclosure document, for instance, prospectus should be worded and made clear, concise and effective. Similarly, RG 228 of ASIC requires that prospectus should enable investors make informed investment decisions by offering them with a clear, concise and more effective disclosure. This implies that positive information should not be given undue prominence that potential misleading. Although the disclosure document was lodged with the ASIC and successfully registered with Super and Duper, a friend and three directors, at some point later, Super and Duper misled the shareholders when they opted to transfer the partnership business inclusive of the company’s premises. This involved spending the subscribers’ funds to cover for the premise contrasting with how it was initially agreed in the prospectus document, a transaction that was not mentioned in the disclosure document or to the shareholders. Furthermore, confusion exists where the funds paid by subscribers are instead used to clear off debts worthy $800,000 that was owed by the partnership. It is relevant to argue that Super and Duper, Rich breached the requirements of section 715 of Corporation Act 2001 (Cth) and ASIC RG 228, and thus misleading the shareholders. Super and Duper should have considered going back to Rich to document a short-form prospectus based on the certain information initially lodged with ASIC prior to transferring the partnership. This could inform the shareholders of their right to own a copy of the document. They should be charged against misleading the shareholders5. In a case of ASIC vs Vines69, it was discovered that Mr. Vines failed to exercise the due care and diligence required of him in section 180 by misleading and not providing adequate disclosure information to his board of directors. It was held that the defective disclosures concerned matters associated with Mr. Vines’ personal knowledge. However, in cases where the board relied on him to involve in timely, accurate and adequate disclosure of information matters. Although the disclosure document of Super and Duper initially met the requirements of ASIC, it ultimately failed to meet the principles of Product Disclosure Statement and disclosure obligations required in the Corporations Act 2001. It is quite clear that good disclosure principles are critical are critical to ensuring that product or invent issuers effectively comply with disclosure requirements as well as promote good disclosure products or services. Bibliography Corporations Act 2001 (Cth) (the Corporations Act), directors are required to disclose certain interests Ford, H A & Austin, R P & Ramsay I M, 2000, Ford's Principles of Corporations Law, 8th ed., Butterworths, Australia. Lipton, P & Herzberg, A, 2000, Understanding Company Law, 9th ed., LBC Information Services, Pyrmont NSW. Read More