Current Issues in Transnational Practice - Assignment Example

Current Issues in Transnational Practice Student Name Institution Date Question 1 To: Partner, From: Houston Law Firm. Date: 30/04/2014. Subject: Legal advice regarding incorporating firms in Australia and New Zealand. Due to the intention of the firm to incorporate a firm in Australia and New Zealand, the law firm indents to offer legal advice regarding the issue. The matter touches on the foreign issues and laws. According to Rule 5.05 (a), of Texas Rules Disciplinary Rules of Professional Conduct, it is prohibited to opine on foreign laws to a client. Following this restriction, the law firm is unable to advice the company on the steps that it should take in order to incorporate the firm in Australia and New Zealand. As a professional and law abiding firm, the company is obliged to obey all the laws and regulations that have been put in place. It is for this reason that the company will not be able to offer the legal advice. However, the firm is allowed to write a memo but no legal advice shall be provided. Since the company cannot offer legal advice to the firm regarding the issue, it recommends that the company should seek the services of the foreign lawyers to provide the legal advice. Various international laws firms and international lawyers are present in different parts of the country. It is thus recommended for the firm to seek their services. This will also plays an essential role in ensuring that the organization does not break the laws which may impact negatively on its intended operations in Australia and New Zealand. Please bear with us for our inability to provide the required legal advice although we are ready to assist the firm in any other way possible. Question 2 Internal memo To: Partner, From: Houston Law Firm. Date: 30/04/2014. Subject: Legal advice regarding incorporating firms in Australia and New Zealand. In terms of each jurisdiction, it is recommended that the company should use the companies in the subjective jurisdiction. The companies are sometimes referred to as special purpose vehicles (SPV). Public listed companies should not be used in the situation. It is recommended that the companies to be used should have one or two shareholders. The companies are usually used for the purposes of holding the real estates. In tax neutral jurisdictions, the companies may have nominee directors or nominee shareholders. This is usually for the purposes of ensuring that the company is able to achieve the tax effects. Trusts are also used for the purposes of holding shares in special purpose vehicle (Lynch, 2012). Taxes are also important considerations for companies and it is important for the company to consider the issues of taxation in relation to the jurisdiction. In Australia, capital made by subsidiaries of USA resident companies is usually not taxed. It is in relation the case of Virgin Holdings SA v Commissioner of Taxation. This is because some countries do not impose direct tax while the other countries only impose tax on the money earned in the country. The incorporation process including the mode of share holding is also important for the organization. All the companies have registries which is important for the purposes of ensuring that all the companies are recorded. In the event that a company intends to have nominee directors and nominee shareholders, the registry can be searched to produce the information. The nominees are usually used incase one intends to conceal ownership. The share holders are usually supposed to provide the nominee director and nominee shareholder for a fee. The nominees are also [permitted to hold shares on trust for another legal person. The type of trust varies and it could be a bare trust or discretionary trust. The trusts can also be used for the purposes of holding shares although they are usually not registered. It is however recommended that the company should comply with all the legal requirements for the purposes of avoiding any legal problems. In Australia, the management of the internal affairs of the company is governed by the corporations Act 2001 (cth), According to section 134 of the corporations Act 2001 (cth), the internal management of the company can be governed through the use of this act. The replaceable rules are also important in the governance and internal management of the affairs of the company. According to section 135(1) (a), the replaceable rules applies to all the companies that were registered after 1 July 1998. The replaceable rules will therefore play an essential role in the management of the company in Australia. According to section 135(3), the failure of the company to comply with the replaceable act amounts to the contravention of the act. The internal issues of the company should be handled carefully for the purposes of avoiding any conflicts that may result to the contravening of the act. The appointment of the directors is an important aspect for an organization. This should be carried out in accordance with the laws that have been put in place. According to section 201A, a proprietorship company should have a minimum of director and the director must reside in Australia. On the other hand, a public company must have a minimum of 3 directors and atlatl 2 of the directors must reside in Australia. This information is important for the company as it is based in the United States of America. According to section 201B of the corporations Act 2001 (cth), a director should be at least 18 years and anyone who is disqualified from managing corporations can only be appointed under the permission of ASIC. According to section 201D of the corporations act 2001; a company must ensure that adperson who intends to be a director must give a written consent before being appointed. Any contravention to this act will attract penalties under the criminal code. In the case of a proprietorship, section 201F of the corporations Act 2001 (cth) allows for the appointment of another director incase of bankruptcy or death of the director. It is important to consider taxation in any jurisdiction due to the different laws that are used for the purposes of guiding how taxation is carried out. In terms of thin capitalization, it is considered that 100% debt finance is the ideal method of a parent company to capitalize a wholly owned Australian subsidiary. This is usually for the purposes of enabling the subsidiary to claim a tax deduction on borrowing. The safe harbor rule is also applicable in the event of a company owning a subsidiary in Australia. However under Division 820 of the Tax Assessment Act 1997, monies loan in on the parents cannot exceed 75% of total capitalization. As of 1 April 2011, the thin capitalization safe harbor in New Zealand is 60/40. The same will also be applicable to Australia from 2014. Nil capital gain tax will also be realized in Australia for the United States of America companies although their will be a tax consequence in the United States of America. The concept of thin capitalization is thus important for company as it may have effects in terms of taxation. The Foreign Investment Review Board is a non statutory body that was established in 1976 for the purposes of advising the treasurer and the government of Australia regarding the foreign investment policy together with its administration. The main function of the board is mainly advisory and decision making is usually done by the treasurer (Tarca, 2014). The board is also responsible for reviewing the proposed investments subject to the Acquisitions and Takeovers Act 1975. The board also has a responsibility of providing guidance regarding the act to the foreign persons, representatives or agents. This is for the purpose of ensuring that they are aware of the requirements of regarding the foreign investments. The company should therefore contact the board for the purposes of ensuring that its proposal is reviewed. More information will also be provided to the company regarding the issues of investments. It is also important for the company to visit the office of information coordinator. This is for the purposes of obtaining more information regarding the operation of companies in Australia. Adequate information is important before starting the business. Question 3 A The Chinese business network has established a strong influence in Asia and it is also expanding in Australia and New Zealand. The Chinese’s business networks usually undergo a high rate of growth and development due to the techniques and concepts used. The company is in a position to support a cash flow of AUD 25 million dollars. Its assets are worth AUD 200 million with equity of AUD 40 million and a debt of AUD 60 million. This is an indication that the company is qualified for a trade off and listing. A trade off involves the disposal of the shares ands assets of the company wholly or in part to another company and it is considered an important marketing strategy. On the other hand, listing involves entering the stock market. This means that listed company has to apply to join the stock market. All the terms and conditions must be met before entering the stock market. During the process of listing, the company will have to make a private contract with the New Zealand stock exchange. The company therefore has an option of listing in the stock market or exiting the market by a trade off. The trade off is advantageous to the company as compared to the listing. This is because the listing involves many requirements that the company may find it complicated. During listing, independent vetting will be carried out which may will take a long time and hence impacting negatively on the operations of the company (Frijns, 2010). The minimum value of the company has also been set up for the purposes of allowing an organization to enter the stock market. The performance of the organization in the stock market is dependant on the spread of the company. This is also a disadvantage to the company as it does not have much spread despite meeting the minimum requirements. It is also important to note that the trade off with the Chinese network will be an easier option for the organization. The trade off process does not have much terms and conditions as compared to the listing. This means that the trade off will be much easier for the organization as the number of terms and conditions are low. The strong Chinese network in the region is important for the company as the trade off will be made easily. This is also considering that the Chinese network is strong and financially capable of a trade off. The mandatory provision for listing is also required and company may not be in a position to fulfill some of the mandatory requirements. This means that the organization will have to meet the mandatory requirements before the being listed in the stock market. The shareholders will also have to agree on some of the rules that are used in the stock market. The option of listing is thus complicated for the company considering that it is a foreign firm and more terms and conditions apply (Cantatore, 2014). The company will also benefit more during the trade off in terms of finances as compared to the listing. This is therefore an indication that the listing is not currently a good option for the company at the moment due to the legal requirements as well as the financial implications. Question 3B The company should consider listing the company in New Zealand in the New Zealand Stock Exchange. The structuring and listing of the company will require the company to meet various legal requirements including compliance with the Companies Act 1993 (NZ). The investment statement must also be provided by the company to the investors before the process begins. This is in accordance to section 37(A) (1) (a) of Securities Act 1978. This will ensure that the company is able to carry out the process effectively and in compliance with the law. The company should carry out the listing process through five major steps. The start up phase is the first phase for the company and this will involve the process of restructuring the company as required under the Companies Act 1993 (NZ). The number of directors should be restructured by the company depending on its need and in compliance with the Act. On the other hand, it is also important for the company to establish the number of shareholders and stakeholders that will be required during the process. All the legal considerations should be adhered to by the company during the process in order to avoid penalties or disqualification. The acquisition phase is the second phase during the initial public offering. This will be carried out in accordance with the section 33 of the Securities Act 1978. According to this section, an authorized public advertisement should be made before the offer is made to the public. This requirement is mandatory in New Zealand and the company should comply with. Section 32(2) of the act prohibits the company from making the offer to the close business associates or relatives. This means that the company should ensure that it has put in place adequate measures to avoid making the offer to the close family members. It is also important to note that the laws also require the company to provide adequate information regarding the offer for the purposes of enabling the shareholders to make informed decisions. This is in accordance to section 37A of the securities Act that requires the companies to make maximum disclosures before the offer is made. During the process, it is also important for the company to be aware of the costs that will be involved in the initial public offer. The costs that will be incurred by the company include the compliance costs and the direct costs. The compliance cost involves the costs that will be incurred for the purpose of meeting the legal requirements. The direct costs will involve the costs that will be paid for the operations including brokerage operations. The company should also comply with the legal requirements when making the offers to persons outside New Zealand. According to section 7(1) (b), the company forbids the persons outside New Zealand from participating in the offer although there are some exemptions. This is important for the company considering that its ownership is based in the United States of America. The third phase of Acquisition is the prospectus phase which involves going public. This phase is important for the organization and it should be carried out when the company has all the legal resources for the initial public offer. The decision to list is also important for the organization and it should ensure that it has complied with all the requirements of New Zealand Stock Exchange. The structure of the prospectus will be important for the company considering that the company intends to raise a huge sum of money. The company should also rethink the decisions before the final decisions are made. This is for the purposes of ensuring that the company should offer the required price in order to raise the required amount of money. The company should also consider offering minimum subscription cost for the purposes of ensuring that it attracts more share holders. The selling phase is the final step that the company will be involved in during the process of Initial public Offering. This phase should be carried out after all the considerations have been met including the legal requirements. This phase is useful to the company as it determines whether it will be able to meet its goals and objectives of the initial public offering. The company should ensure that there is a presence of an underwriter during the process. This is for the purposes of ensuring that the minimum subscriptions are met during the process (Coulton, 2011). The selling phase is important to the organization and it should ensure that it has been carried out in appropriate manner and in compliance with all the legal as well as the commercial requirements. The company should also ensure that no financial assistance is offered to a company during the purchase of the shares. This is because it will be contriving section 76 of the companies Act 1993. The company should also carry out the process with the knowledge that the process contributes to the growth and development of the economy of New Zealand. The continuous disclosure of insider trading is also important for the company. Question 4A Listco should advice of the market negotiations since it meets the legal requirements for carrying out the negotiations, On the other hand, it is important for the two companies to enter into a binding agreement. This is due to the nature of the negotiations. The binding agreement always has clauses that will ensure that the interest of each party is protected. Question 4B Listco also has the responsibility of advising the market of the concluded agreement. This is for the purposes of ensuring that it acts bin good faith and hence ensuring that the commitments are honored. On the other hand, advising the market is important in the presence of the binding agreement. Question 4c Insider trading is prohibited by the laws in Australia. Australian Securities and Investments commission is responsible for dealing with the issues of insider trading. The Corporations act 2001 (cth) is the legislation that is used for determining whether insider trading has occurred or not (Bainbridge, 2010). In the situation, Alex who is a member of CAG has leaked conf9odential information to the friends and brokers from the other organizations. The friends are a direct party to the acquisition and such information influences their decisions. It is also due to the availability of the information that they were able to make the purchase decisions. According to section 272 B, disclosure should be made to the interested party in an official way two days before the offer. The information was disclosed in advance which amounts to the violation of the act. According to section 716, the disclosure should be made in an official manner. On the other hand, the act also emphasizes that no investor or investors should have prior knowledge that is not accessible to the other members of the public. The brokers and the waiter had prior knowledge which they used for their advantage. This amounts to contriving of the law regarding the insider trading. All the parties involved have thus violated the laws that prohibit the insider trading in Australia. The members are thus liable for prosecution in accordance with the laws that prohibits insider trading in Australia. If convicted, Fred may end up paying for a fine and may serve a jail term. The waiter may end up losing the shares bought. This is due to the strict nature of the laws that forbids the insider trading in Australia. References Corporations Act 2001 (cth). Securities Act 1978 (cth). Companies Act 1993(1993). Virgin Holdings SA v Commissioner of Taxation [2008] FCA 1503. Frijns, B., (2010). The dynamics of price discovery for cross-listed shares: evidence from Australia and New Zealand. Journal of banking & finance, 34(3), 498-508. Lynch, N. (2012). Risky business: Are you ready for the new sanctions landscape. Keeping Good Companies, 64(5), 313. Tarca, A. (2014). A Comparison of Between-Country Measures of Legal Setting and Enforcement of Accounting Standards. Available at SSRN 2428603. Cantatore, F. (2014). Businesses are people too? Anomalies in widening the ambits of" consumer" under consumer credit law. Australian Business Law Review. Coulton, J. J. (2011). Corporate payout policy in Australia and a test of the life‐cycle theory. Accounting & Finance, 51(2), 381-407. Bainbridge, S. M. (2011). Insider trading. Cheltenham (UK): Edward Elgar Publication. Read More