The Australian Corporations Act 2001 and Start Up Pty Ltd - Assignment Example

LAW 2106 – Law of Business Organisations Assignment template – Semester 3 2015/16 Name: Student number: Word count (without footnotes) (maximum allowed 2000): State any approved extension date and attach the course leader’s approval: Total marks awarded: /40 MARKING CRITERIA FOR LAW2106 ASSIGNMENT Question 1 Criteria F C B A HD Quality of analysis and problem-solving skills: Identifies legal issue/problem No clear identification of legal issues relevant to the case and/or issues identified are not relevant. Identifies at least one legal issue relevant to the case but more detail is required. Identifies most legal issues relevant to the case but lacks clarity. Correctly identifies most legal issues relevant to the case. Correctly identifies all legal issues relevant to the case. Evaluates relevant legal principles Lack of relevant legal principles or those identified are incorrect Outlines some relevant legal principles but failed to apply them properly to the facts Outlines some relevant legal principles and apply them properly Outlines most of the relevant legal principles and apply them properly Outlines all relevant legal principles and apply them properly Develops logical conclusion Stated conclusion is not aligned with the question fails to tie together legal arguments either for or against the application of legal principles. Stated conclusion is broadly aligned with the question and ties together some legal arguments for the application of legal principles. Stated conclusion broadly answers the question, and ties together some legal arguments for and against the application of particular legal principles. Stated conclusion answers the question and ties together most the legal arguments for and against the application of particular legal principles. Stated conclusion answers the question, and logically ties together the legal arguments for and against the application of particular legal principles. 10 Marks 0-3 4-5 6 7-8 9-10 Quality of research skills: Research Little or no evidence of original research Evidence of some original research Evidence of original research from a number of different sources Evidence of a high level of original research Evidence of a high level of original research which enhances application and analysis Citation and referencing Many errors and/or little or no attempt made at referencing Mostly accurate – some minor errors Consistently correct 5 Marks 0 1-2 3 4 5 Quality of communication skills: Writing style, grammar and spelling Inappropriate style, tone and/or choice of language or many errors of spelling and/or grammar. Mostly appropriate style, tone and/or choice of language. Spelling and grammar mostly accurate. Appropriate style, tone and/or choice of language. Accurate spelling and grammar. Highly appropriate style, tone and/or choice of language. Spelling and grammar consistently accurate. Structure – also including brief introduction, body and brief conclusion Poor structure and/or use of paragraphs or headings Mostly appropriate structure and/or some use of paragraphs or headings to enhance readability Appropriate structure and use of paragraphs or headings Excellent structure and use of paragraphs or headings 5 Marks 0-1 2-3 4 5 Question 1 (20 marks) Introduction The Australian corporations Act 2001 states that a limited proprietary company must disclose certain documents for incorporation. The documents include memorandum of association, articles of association, statement of nominal capital and a declaration of compliance1. Memorandum of association David was obliged to convey inter alia his desire to be incorporated into Start Up Pty Ltd. This document should contain the company’s objects and external constitution and acts as the main document. The following clauses are the subsets of a memorandum of association: i) Name clause; Start Up Pty Ltd, in this case the shareholders (David, Jane and john) are limited by shares. ii) Registered office clause; states the registered office of Start Up Company and its location in Australia. iii) Objects clause; indicates the purpose for which David is forming the company, this case being to market his new Bookface app. The clause shows the company’s contractual capacity while delimiting such capacities. David’s company is given guidelines concerning the scope of its contracts. iv) Capital clause; issues specifications of capital under which the company is to be registered. David provided such specifications concerning Start Up, with clearly defined capital contributions by himself, Jane and John. v) Liability clause; defines the liability of members as whether unlimited or limited either by guarantee or shares. For Start Up Pty Ltd, members’ liability is limited, as mentioned earlier, by shares. vi) Declaration clause; indicates David’s desire to be incorporated as Start Up Pty Ltd. vii) Details of subscribers; specifies the names of subscribers (David, John and Jane) and their other relevant details such as the number of shares (one share each), occupations, postal addresses among other particulars. viii) The memorandum of association must have a specific date. The article of association serves as the internal constitution of the company governing directors, share capital, shares among others2. For Start Up Pty Ltd, two of the three possible people (David, John and Jane) should have signed the document, with attestation of a third person (Witness). Since the company has a share capital, all the three subscribers should have signed against their names the number of shares they take, the number being one each. The statement of nominal capital is required for this company since it has a share capital3. The document specifies the amount of the company’s nominal capital in terms on Australian Dollars. David finally signs the declaration of compliance since he is the sole director and secretary of Start Up Pty Ltd as declaration that the corporations act has fully been adhered to. The company’s existence starts upon registration under its name notably Start Up Pty Ltd, and continues perpetually until deregistration as per the requirements of S119 of corporation Act 2001 Legal obligations of a sole director and members A company, by law, exists as a separate legal entity. It has its own capacity to sell and buy assets, borrow money, contract, sued and be sued among others. The director of any company should bear in mind that the company owns all the assets. The company pays its own debts and the invested money is for use for company’s purposes alone. The director should not treat such assets, property and funds as if they are his own4. Even where there is conflict of personal and company interest, according to S191 (1) and S181, a director is obliged to always act in good faith by notifying other participants of such interests. S182 requires that participants of a corporation, including the director must not act in ways that are beneficial to them and detrimental to the corporation. David, not being a registered proprietor by himself, did not have any capacity to sell the Bookface idea, according to S184(2). According to S198E, a sole director who is the only shareholder can exercise all company powers. In this case, David is a sole director but not an only shareholder and hence, according to the company’s constitution in the memorandum of understanding, David is limited with respect to such powers. S200C (2) and S200 (d) require that David should have obtained the consent of other shareholders to sell the Bookface idea; reflecting that David commited an offence in this case. IT IS also a criminal offence, according to S184, any member to act in dishonesty, recklessness and failure to exercise utmost good faith for the company. Discussion To begin with, the general rule on Salomon V A Salomon & Co Ltd [1897] AC 22 treats Start Up Pty Co. as a separate legal entity from David. Susan has no discourse against David nor the company since it has no assets to pay its debts. She is therefore the loser. Similarly, according to Industrial Equity Limited v Blackburn (1977) 137 CLR 567, Susan can only have a discourse against the company but not participants, including David. However, according to the findings of Littlewood Mail order Stores Ltd v Mc Gregor [1963] 3 All ER 855, it is possible for the courts to see through the veil cast over a company by incorporation such that the personality of participants, notably David is verified; Susan and the other two shareholders therefore have a discourse against David. According to Gilford Motor Co v Horne[1993] Ch 935, David as a director of the company should not enter in any contracts that are competing with Start Up Pty Ltd. He did this by selling the Bookface idea to Big Blue Co. correspondingly, the findings of Jones v Lipman [1962]1 WLR 823 and Green and Clara Ltd v Bestobell Industries Ltd [1982] WAR 1 hold that upon piercing the veil, David’s contractual obligations are binding to Start Up Pty Ltd. David had only used the company as a tool to avoid his prevailing contractual duties and conflict of interest. Finally, according to Industrial Equity Limited v Blackburn (1977) 137 CLR 567, the profits made by David upon selling the idea, are binding to the company. Conclusion According to these findings, David’s Siblings as well as Susan have a discourse against David. MARKING CRITERIA FOR LAW2106 ASSIGNMENT Question 2 Criteria F C B A HD Quality of analysis and problem-solving skills: Identifies legal issue/problem No clear identification of legal issues relevant to the case and/or issues identified are not relevant. Identifies at least one legal issue relevant to the case but more detail is required. Identifies most legal issues relevant to the case but lacks clarity. Correctly identifies most legal issues relevant to the case. Correctly identifies all legal issues relevant to the case. Evaluates relevant legal principles Lack of relevant legal principles or those identified are incorrect Outlines some relevant legal principles but citation of applicable cases and/or statutory provisions needs more detail. Outlines some relevant legal principles, citing applicable cases and/or statutory provisions. Outlines all relevant legal principles, citing applicable cases and/or statutory provisions. Outlines all relevant legal principles, citing applicable cases and/or statutory provisions. Develops logical conclusion Stated conclusion is not aligned with the question fails to tie together legal arguments either for or against the application of legal principles. Stated conclusion is broadly aligned with the question and ties together some legal arguments for the application of legal principles. Stated conclusion broadly answers the question, and ties together some legal arguments for and against the application of particular legal principles. Stated conclusion answers the question and ties together most the legal arguments for and against the application of particular legal principles. Stated conclusion answers the question, and logically ties together the legal arguments for and against the application of particular legal principles. 10 Marks 0-3 4-5 6 7-8 9-10 Quality of research skills: Research Little or no evidence of original research Evidence of some original research Evidence of original research from a number of different sources Evidence of a high level of original research Evidence of a high level of original research which enhances application and analysis Citation and referencing Many errors and/or little or no attempt made at referencing Mostly accurate – some minor errors Consistently correct 5 Marks 0 1-2 3 4 5 Quality of communication skills: Writing style, grammar and spelling Inappropriate style, tone and/or choice of language or many errors of spelling and/or grammar. Mostly appropriate style, tone and/or choice of language. Spelling and grammar mostly accurate. Appropriate style, tone and/or choice of language. Accurate spelling and grammar. Highly appropriate style, tone and/or choice of language. Spelling and grammar consistently accurate. Structure – also including brief introduction, body and brief conclusion Poor structure and/or use of paragraphs or headings Mostly appropriate structure and/or some use of paragraphs or headings to enhance readability Appropriate structure and use of paragraphs or headings Excellent structure and use of paragraphs or headings 5 Marks 0-1 2-3 4 5 Question 2 (20 marks) Partnership Introduction Partnership act 1891 in Australia defines partnerships and limited partnerships. A partnership is therefore a relationship between two or more people in a business with a main view of making profits. The requisites of partnership are hence an association of persons, a business must be involved that is profit oriented and must be performed in common by the partners5. Partnerships can be either general or limited, having between 2-20 members. It is an incorporated and operates uberima fidei (utmost good faith). A partnership can sue or be sued, each partner acts as an agent of the others, and hence the law of agency applies to partnerships. Liability of partnerships is generally considered unlimited. It can be dissolved upon death, bankruptcy or insanity of a partner. Formation Partnerships are unincorporated and not subject to legal formalities. They are formed through oral agreements, written (sealed or unsealed) or by parties’ implicating conducts. However, upon reaching a consensus, partners may formulate a partnership deed, specifying the terms and conditions of their association. The partnership specifies the nature of the business, in this case being a pub. Steven, Grace and Amanda will provide information concerning capital contribution where they will contribute equally as per their inheritance, unless any additional capital is required; in this case, they will agree on such additional contributions. They will set out the rules of profit sharing and interest on capital. Procedure for calculating goodwill will be determined, as well as the powers of the partners; in this case they should have equal powers based on equal share capital, all factors held constant. Auditing, accounts, expulsion of a partner and procedures of arbitration are also contained in the partnership deed6. Since all the three want to be separate legal entities from the business, will be involved actively in the business, are above 18 years of age and are not nominal, they will be regarded as limited, active, major and real partners respectively. All partners have the right to inspect the book of accounts at any time7. Dissolution A partnership is dissolved by a court order or by other factors8. A court order for dissolution will be issued upon permanent incapacitation, insanity, breach of partnership deed or unfair practice such that he firm’s reputation is ruined; by a partner or party. The order will also be issued when the business is continuously making losses or when it is only equitable and just to dissolve the firm. Where the court is not involved, a partnership may be dissolved upon accomplishment of purpose, lapse of time, mutual agreement by the partners, death of a partner, bankruptcy, termination at will or illegality. Advantages of partnership Partnerships provide for division of labor and specialization, participation in management and have a wide capital base. Formation of partnerships is easy as there are no legal formalities involved, they are flexible in that the partners can agree to change the nature of the business and there is sharing of losses9. Disadvantages of partnerships Sharing of profits and law of agency are major disadvantages. There can be delayed decision making since all partners must agree while death, bankruptcy or insanity of a partner dictates dissolution. A partner cannot be rewarded according to the effort they put in running the business10. Proprietary limited company A proprietary limited company is formed just like any other company by provision of a memorandum of association, article of association, statement of nominal capital and declaration of compliance. It is formed by between 1-50 shareholders11. The shares of such a company cannot be traded publicly nor can the company involve itself in fundraising activities requiring disclosure of prospectus. Steven, Grace and Amanda will, upon satisfactory issue of the named documents vote in a director and a secretary. Upon issuing the document relevant to their office, director and secretary, they will be issued with a certificated of incorporation. Since they want to exist as separate legal entities, they will be limited by equal shares. All other relationships in the business will be contained in the memorandum of association12. The company can be dissolved voluntarily by mutual agreement or involuntarily by requirement form creditors when the company cannot pay its debts. It may also be required by the government to be dissolved. Advantages i) The liabilities of members is limited by shares ii) The business has a going concern since it is formed by law. iii) As stated in the objects clause, the business can own property and enter into contracts. iv) Existence as a separate legal entity enables the business to sue or be sued. v) Companies are exposed to wide capital bases due to member contributions. vi) The business has qualified management; in this case they will hire existing or new management for the pub. Disadvantages i) Many complex legal formalities are involved during formation ii) Companies are exposed to undue publicities. iii) Companies are expensive in maintaining and winding up. iv) Companies have limitations as to what transactions they can engage in. v) Taxes payable by companies are significantly large vi) Members participate in daily operations of business Conclusion Based on their preference to remain separate legal entities from the business, the siblings have the options of incorporating the pub as a limited proprietary company or a limited partnership13. They can also, due to inexperience in running the pub, hire qualified employees but follow closely in management of the business. Both business structures will allow equal sharing of profits as required by the inheritance. Reference list Bently, L. and Sherman, B., 2014. Intellectual property law. Oxford University Press. Berk, J., DeMarzo, P., Harford, J., Ford, G., Mollica, V. and Finch, N., 2013. Fundamentals of corporate finance. Pearson Higher Education AU, pp. 130-141 Bloomfield, P., 2006. The challenging business of long-term public-private partnerships: Reflections on local experience. Public Administration Review, pp.400-411. Butt, Peter. Modern legal drafting: a guide to using clearer language. Cambridge University Press, 2013, pp.167-175 Ferran, E. and Ho, L.C., 2014. Principles of corporate finance law. Oxford University Press. Gower, L.C.B., 2013. The English Private Company. Law and Contemporary Problems, pp.535. Ireland, P., 2013. Property and contract in contemporary corporate theory. Legal Studies, 23(3), pp.453-509. Keane, A. and McKeown, P., 2014. The modern law of evidence. Oxford University Press. La Porta, R., Lopez-de-Silanes, F., Shleifer, A. and Vishny, R., 2013. Investor protection and corporate governance. Journal of financial economics, 58(1), pp.3-27. Nicholson, B., 2012. The fiduciary duty of close corporation shareholders: A call for legislation. American Business Law Journal, 30(3), pp.513-535. Securities, Australian. "Investments Commission (ASIC)." ATO’s own intelligence and publicly available (2012). Stout, L.A., 2013. The shareholder value myth. European Financial Review, April-May. Read More