Business Law Issues - Assignment Example

Business Law University Name LAW2106 ASSIGNMENT ASSIGNMENT 1 David independently came up with a new app called Bookface and simultaneously, he was the principal creditor and the principal shareholder as well. With time, he incorporated a new company to promote and market the app. The company, Start Up Pty Ltd had three shareholders namely: David, John, and Jane. Also, as the time went by, the company entered a contract with a web developer, Susan, who worked tirelessly for a month to develop the app. Unfortunately, David sold his idea to another company using his details and not the details of the company something that left the other two shareholders, John and Jane and the contractor, Susan confused on the way forward since the company was no longer in existence. The two shareholders don't know the fate of their shares in the company while the contractor does not know where she could claim the money she had worked for while developing the app. However, following the business laws, the shareholders and the contractor can have recourse against David.1 First, based on Salomon V A Salomon & Co Ltd [1897] AC 22, the other shareholders stand a chance to have recourse against David because from the high court and the court of the appeal rulings concerning the Salomon V A Salomon & Co Ltd would favor them. In the case, the high court judge argued that since Solomon solely created the company and transferred his business to it, the company and Solomon were the a single unit and, therefore, he was liable for the debts to the creditors who were unsecured. Following the same incidence that is the same as divides, who created the Start Up Pty Ltd solely and transferred his app business to it, the company and he was the same thing. Therefore with or without the company existing, David was liable to the pay back the shares to the other shareholders and also pay the contractor who worked tirelessly to develop the app. Moreover, the court of appeal ruled against Salomon, in the case of Salomon V A Salomon & Co Ltd because he had abused the incorporation privileges and limited liability. Since this case is similar to that of David who also abused the incorporation privileges, the shareholders, and the contractor have recourse against him since the court of appeal will likely rule the case in their favor.2 However, in the same law, Salomon V A Salomon & Co Ltd [1897] AC 22, the house of the lords ruled that Salomon was not liable to any losses that other shareholders encountered because the company was legally incorporated, and from the law, a company was a separate person. Therefore, it was the company to which was liable to the debts the other creditors were asking for. As a result, in the case of David and Start Up Pty Ltd, it is the company that is liable to sort the shareholders' and contractor's grievances since the company and David are considered two different people.3 Therefore, John, Jane, and Susan have no recourse against David, and their claims are invalid. And since the company has no assets, it cannot pay the shareholders back their shares, and neither can it pay for the expenses the contractor underwent to develop the app. Secondly, from the law of Gilford Motor Co v Horne [1993] Ch 935, the shareholders and the contractor will have recourse against David; this is because, in reference to this law, David formed the company as a tool to use to carryout fraud. Moreover, concerning the law of Jones v Lipman [1962]1 WLR 823, which made the ruling against Mr. Lipman with reference to the law of Gilford Motor Co v Horne[1993] Ch 935, the shareholders and the contractor are entitled to have recourse on David. This is because, in reference to the law of Jones v Lipman [1962]1 WLR 823, David would be found guilty of using the company to avoid the law of equity. This is the same as the case of Lipman and John, where Lipman incorporated the company and sold the land that he had agreed to sale to John but late changed his mind and sold the land you his company. When John enquired why he failed to keep the agreement, he claimed that the land belonged to the company and not him and evaded selling the land to John in that case. However, the ruling was made against him and the company because he used the company to breach the agreement.4 Likewise, in reference to the law of Littlewood Mail order Stores Ltd v Mc Gregor [1963] 3 All ER 855, the shareholder and the contractor will have recourse against David.5 This is because the Littlewoods case was ruled in reference to the Salomon V A Salomon & Co Ltd case that despite the House of Lords ruling for Salomon, the high court and the court of appeal ruled for the shareholders. Therefore from the law about the case of Littlewood Mail order Stores Ltd v Mc Gregor, the case will be ruled in against David since him, and the company is the same thing because he was the sole owner of the Bookface idea and solely incorporated the company in which he was the managing director.6 In conclusion, despite the House of Lords ruling for Salomon whose case is similar to David's in the law of Salomon V A Salomon & Co Ltd [1897] AC 22, basing its argument that the company was legally formed. And that the company and the is treated as a different person from its incorporator. About the other laws, the case of David, John, Jane, and Susan, will be ruled against David. This is because it is clear that David used incorporated the company to perpetrate fraud. Also, it is evident that David incorporated the company and included the app business in it so that he could evade the law of equity. Therefore, about the laws discussed above regarding the Start Up Pty, the shareholder, Jane and John and the contractor, Susan, have recourse against David. QUESTION 2 Deciding on a business structure opt for when starting up a venture is quite a tricky and involving process that needs thorough scrutiny so that a business can be successful in future and make a profit. There are many business structures that a person of a group of people can go for when they need to start up a venture or run a given business namely: partnership, Discretionary trust, fixed/unit trust, and proprietary limited company. For the case of Grace, Steven, and Amanda, who have been left with an inheritance from their deceased father, and have never operated a pub before. There are three business structures (partnership, Discretionary trust, and proprietary limited company) that they can opt for to run successfully the pub that yields a profit of not less than $5 million annually. However, there are merits and demerits of the business structures that need to consider before selecting the one that best fits their case.7 Partnership Starting up a business in partnership offers many benefits to the partners since there is someone whom you can share responsibilities of running the company with. However, if not well planned and given an ample forethought, the deal can easily turn sour depending on the circumstances and the parties involved. However, with proper consideration and planning, the partnership can still be an unequal success. The partnership is the simplest and cheapest business arrangement and has high survival chances compared to the sole proprietorship. However, considering the pros and cons are critical.8 Pros The start-up cost is shared The responsibilities at work are shared The expenses and the risks in the bus Liabilities are shared There are mutual motivation and support The additional contacts and complementary skills can lead to greater financial achievements together compared to the one achieved individually.9 Cons Since in partnerships the partners are individually ad jointly liable to the operations of a business of the other, a partner is liable for debts accrued by the business, not a portion of it but the whole of as a result of mistakes caused by another partner. Profits are shared equally regardless of individual efforts A partner cannot have a total control of the business since the decisions are shared, and different in opinion can cause disagreements among the parties. The friendship or the relationship that exists between the partners before starting a business is not guaranteed. Discretionary trust In the recent past, experts have turned out to prefer discretionary trust as the best business structure especially where more than one family or group enters into an agreement to start up a venture. However, no structure is perfect and serves the purpose at all times. As a result, it is important to note the pros and cons of the discretionary structure before opting to select it. Also, it is vital to know that this structure is worth using only when all the pros are relevant Pros The business can easily access the CGT concession since the pub has a value worth more than $6 million The minority owners of a business can also access the CGT concession Utilization of losses.10 Cons Every partner in a discretionary trust is liable for the partnership debts Regarding administration, there are several entities and whenever there is a contract that needs to be signed, are the partners need to be present. Also, the appointment of a manager needs to be formalized to ensure that the manager does not act in the same capacity. Also, using nominees as managers is not advisable because the nominees themselves are trusts.11 Proprietary limited company Another structure to choose from when starting a venture a group is the proprietary limited company. Every individual aim to start his or her own business, be his or her boss and control his or her destiny, but in the long run, selecting a business structure determines the success and the direction the business will likely take. In this structure, the board of directors makes most of the decisions on the company's behalf although the shareholders make some. Just like the other business structures, it is important for the group to find out its pros and cons before opting for it as a business structure.12 Pros The shareholders liability is limited to the capital of shares they own and that which is unpaid. When a company goes into debt, creditors cannot obtain the debt from directors not unless they give a green light to trade with the company even after solvency The company's assets only secure any loans provided to the company Companies have the ability to procure investment from external parties offering shares. If a company operates different entities, then the loss from one entity can be offset by other sources of income Companies are governed by the constitution and regulated by the company Act Companies are entitled to perpetual succession and are considered to be distinct legal entity that allows an organization to survive the death of a shareholder or a director where the share of the deceased is distributed as per the will of the deceased.13 Cons Sometimes managers are required to provide guarantees for a company to receive a loan. Companies pay a 30 percent tax, and they must have financial accounts on hand to present the tax returns Profits are not necessarily required to be given to the shareholders and instead used to develop the company, and the retained profits are taxed because they are considered as income. The consumers' act protects consumers of the company There are several costs associated with an organization such as the registration and licenses.14 From the analysis of the three business structures, the best structure Steven, Grace and Amanda should opt for is the propriety limited company. This is because, despite the high cost of registration and licensing, the structure will enable the siblings to continue with their successful careers while at the same time having control of the business. Also, other structures will require them to be the full-time managers of the ventures that are likely to turn futile since none of them has an experience of operating a pub. Therefore appointing someone experienced in bar operations will save them a great deal and will maintain the position of the pub. Also, the structure will allow them to expand the business since the profits can be used to grow the company. Bibliography Business Structures. Perth, W.A: Small Business Development Corp, 2002. Print. Davis, Dennis, Farouk Cassim, Walter D. Geach, and TshepoMongalo.Companies and Other Business Structures in South Africa. , 2010. Internet resource. Epstein, David G, Richard D. Freer, and Michael J. Roberts.Business Structures. St. Paul, Minn: West Group, 2002. Print. Grant, Tina. International Directory of Company Histories: Volume 33. Detroit, Mich: St. James Press, 2000. Internet resource. Grantham, Ross, and C E. F. Rickett.Corporate Personality in the 20th Century. Oxford: Hart Pub, 1998. Internet resource. Hocking, Anne H, and Richard L. Kirkpatrick.Global Trademark Search and Application Workshop, 2013. , 2013. Print. McLaughlin, Susan. Unlocking Company Law. Abingdon, Oxon: Routledge, 2013. Internet resource. Riggs, Thomas. Encyclopedia of Major Marketing Campaigns. Detroit, MI: Gale, 2007. Internet resource. Spadaccini, Michael. Business Structures. Irvine, CA: Entrepreneur Press, 2007. Print. Wright, Paula, and Carole Machin.Business Structures. Bromley, Kent: TV Choice, 2004. Read More