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CORPORATIONS LAW – ASSIGNMENT QUESTIONS

Weighting: 40%

Length: 2000 words (+/- 10%), correctly referenced Question 1

Michael owns a restaurant in Parramatta’s busy Church Street precinct. His restaurant is very popular and he recently purchased another restaurant in Blacktown to add to his portfolio. Michael has been running the business until now for 30 years as a sole trader.

Michael’s business is flourishing. After completing their Bachelor of Business degree, his two sons, Adam and John, recently decided to join Michael’s business. They see opportunities opening up in newmarkets and would like to expand the business even further. They want the family business to be in a form that would allow it to expand as necessary and also make it easier to raise the capital required for this expansion. They have also heard that there are tax benefits in operating a business through a company structure rather than as a sole trader or partnership.

Adam and John persuade their father to take advice on turning the family business into a familyrun company. There is some contention regarding the naming of the company. Michael prefers to keep the current name of the business, whereas Adam and John prefer the name “Sicilian Treats”. Michael is skeptical about the idea of incorporating as he thinks this business structure is not suitable for small businesses like his. He doesn’t understand the effect of a company business structure or what the advantages would be for his business. He also is afraid that there are only disadvantages and that his two sons might try to push him out of the business. Michael wants to make sure that he retains control if the ownership of the business.

Advise Michael and his sons of the steps that need to be taken to incorporate and register a company and the advantages and disadvantages of running the business as a company. You should also advise Michael on all the other concerns which he mentioned.

Question 2

George is contracted as a salesman by Golden Gate Technologies (GGT) Ltd, which develops software that make businesses more efficient in their workflow. Golden Gate Technologies is very well known for having a good product. George’s contract specifically stipulates that he is allowed to offer discounts of up to 10% for sales but not more! Anything above 10% requires approval from his manager.

One afternoon, George was approached by Brendan, who is the CIO (Chief Information Office) for Poolworths Ltd, a large supermarket company based in New South Wales. Brendan is tasked by his Poolworths with the job of buying new software to make his company’s work-flow more efficient. Brendan says that he is looking to buy $2 million worth of software from GGT Ltd.

George hasn’t had much luck with sales in recent months and is therefore very keen to get Brendan’s business and promptly offers him a 15% discount. Brendan is very happy with this offer and said he would get back to George within a day.

When he returns to his office, Brendan tells his colleague Justin about the offer from George. Justin is skeptical about the deal as he had never heard of such a huge discount. He even said to

Brendan that “I have never heard of such a huge discount, are you sure George is even allowed to offer such a deal? I suspect he may not be allowed to do this.” Brendan is adamant however, that this deal would be by far the cheapest of all the offers he has received and that Poolworths should therefore go ahead with the deal.

Brendan emails George that he accepts his offer and that he will come to GGT’s offices to sign the contract the following week. When Brendan arrives at GGT’s company offices the following Monday, the Manager of Golden Gate Technologies refuses to accept the deal, sign the contract or hand over the software, saying that George had no authority to give a 15% discount.

Advise Poolworths Ltd as to their legal position citing relevant legal authority. You must assume that all facts can be proved in court.

Assessment Criteria Fail

You will have shown evidence of the following:

  • the written expression is poor and difficult to understand (spelling and grammar require improvement)
  • the answer is poorly organised
  • referencing is generally inadequate
  • lack offamiliarity with the legislation anditsapplication
  • failure to identify and address the issues in the question
  • reasoning and application of law demonstrated is poor.

Pass

You will have:

  • made a conscientious attempt to address the topic and/or answer the question
  • shown evidence of having done the required reading and of having understood the reading
  • presented a reasonable argument to back up your conclusions
  • demonstrated a reasonable level of spelling and grammatical usage
  • used referencing but this may need improvement
  • issues that may need to be identified and addressed in more depth.

Credit

You will have:

  • addressed the topic and/or answered the question directly
  • presented soundly based arguments and backed these up with reasons
  • gone beyond description to analysis of key issues
  • used the English language well
  • shown evidence of reading widely
  • demonstrated understanding of the reading
  • used referencing that is satisfactory.

Distinction

You will have:

  • met the above criteria for a credit, and
  • demonstrated a high degree of understanding of the concepts of the course
  • demonstrated deep insight into the application of knowledge and skills required in the course to complex theoretical and practical situations
  • used referencing correctly
  • made reference to all appropriate legislation.

High Distinction

You will have:

  • met the above criteria for a distinction, and
  • demonstrated an outstanding level of achievement regarding the objectives of this course
  • demonstrated an interesting and/ or original approach/ idea/ argument
  • demonstrated mastery of the relevant referencing system
  • ensured conclusions are backed by well-reasoned arguments demonstrating a detailed insight and analysis of issues
  • ensured references are made to the appropriate legislation for particular issues.

Answer

Case Law

Answer to question no-1

There are the following issues which have been found in this report related to the legal implication on the company.

  • Whether running business in the form of company is beneficial as compared to other forms of business like sole proprietorship or partnership or not?
  • Steps for registration of a company?
  • Advantages and disadvantages of a company form of business?
  • Suggesting Michael and his sons the best form of business for their business.

What is the company?

A company or corporation has separate legal entity from its creator. Company is created by either charter or prescription or by any legislation. There are basically two types of companies in Australia which are mentioned herein (Australian securities and investment commission, 2018).

  • A public company: and 
  • A private company (most popular type)

Features of Company

  • Separate Legal Entity – The separate legal entity distinct company from the partnership and other forms of business. It states that the company is wholesomely responsible for the repayment of debts of creditors and in no case the member is liable to pay from their own pocket and in no circumstances the members can be sued; (Lipton,  Herzberg, & Welsh,2014).
  • Incorporated Association - A company comes into existence when it is registered under the relevant statute;
  • Artificial Legal Person – The company is not individual therefore not a natural person. Therefore the company is an artificial person which can be sued or can sue, can enter into contracts in its own name, etc.
  • Perpetual Existence – The Company stays on forever and doesn't matter on the death of any member or shareholder.

Process of Incorporating Company

Australian Securities and Investments Commission

Every company in order to get itself registered shall register itself with Australian Securities and Investments Commission.

Firstly, you need to register on the ASIC website by filing form No. 201 and post-filing the form the fee is required to be paid. The ASIC website also allows one feature named "help me decide" which help user decide that if a company form of business is best for the user or not.

Secondly, the name is required to be chosen. The ASIC provides the facility for online search of names TOC check if certain names or trademark is not already registered to avoid confusion. There is a certain limitation to what name can't be chosen or what words can't be used while the incorporation of a company. The company name can include the number of characters.

Post finalizing of company's name, the company is required to choose the rules and regulation for itself which they hall adhere to. This shall include:

  • Articles of association;
  • Memorandum of Association;
  • The constitution

As held in the case of Knight Frank Australia Pty Ltd v Paley Properties Pty Ltd [2014SASCFC 103, it is found that, the company is required to choose who will run the company or who will manage the day to day affairs by appointing directors. The shareholders are also required to be chosen in order to see which investors are ready to invest in the business. With this company is also required to choose the share structure like a company will issue equity shares or preference shares or of some other kind to investor.

Fifthly, the company is required to choose the permanent registered place where the company will operate from and where all the books of accounts will be kept. In addition to this, the company can further choose some other place to operate itself without any limitation.

Post fulfilling all the above-mentioned requirements the company can apply for the registration certificate and CAN.

Advantages and Disadvantages of company

Advantages:

  • Liability of shareholder is limited;
  • Easy transferability;
  • Easy to trade anywhere;
  • Favorable taxation rate;
  • Wider access to capital.

Disadvantages:

  • Expensive to incorporate:
  • Too much compliances:
  • Financial affairs are public:
  • Dividend distribution is taxable.

In the given case, Michael and his sons are making up their mind to convert their business into company form which is a wise idea. Michael is already into his business from the last 30 years and is very popular. In order to expand business at large by fulfilling certain terms and conditions, Michael can list his company on the stock exchange to get wider reach all, over the country. Only company form of business provided the facility of listing. The company also provides various advantages such as easier access to capital which Michael is looking forward to. Also, the lower tax will help Michael retain higher profits in business and distribute more dividends to its shareholders.

Nowadays forming company is very simple and easy process unlike earlier. The company can be incorporated in as low as one day and even small to small businessman or shopkeeper can incorporate a company without much hassle. In private limited company, the ownership is held generally by one or more individual or enterprise which allows the owner to restrict the distribution of ownership. In this manner, ownership can be easily protected or can be distributed between two or three people as per the will of person incorporating the company. Therefore, two sons of Michael can't be able to push out Michael in any circumstances. As also the liability of members is limited, therefore under no circumstances, Michael will be held personally liable to pay debts.

As per above-mentioned discussion, it is concluded that Michael shall go for company form of business in order to gain more market, to expand more, to reach out to more and more people. As now the number of members is three, a private company can be formed which allow Michael to retain ownership by holding 50-70% stake in the company. In this way, Michael can retain ownership. Also, investors like venture capitalist prefer to invest in a company form of business rather of the sole proprietorship. Therefore Michael shall proceed towards incorporating a company as per the process mentioned above to access all the lucrative advantages that company form of business provides.

Answer to question no-2

Issue 

  • What are the issues in the contract of George that need to be determined?
  • What are the applicable laws and regulations that apply to the case of George?
  • What are the statutory assumption of the indoor management rule and what are they?

Rules

The issue in the given case refers to whether offering more discount than allowed in the contract of George, a salesman of Golden Gate Technologies (GGT) Ltd can make it voidable?  He was approached by Brendan a CIO of Poolworths Ltd. which is a supermarket situated in New South Wales for purchase of software worth $2 Million.  George had offered a 15% discount to him. In reality, it was clearly mentioned in the contract of George that he is permitted to offer a 10 % discount for sales. In the case of offering a discount of more than 10%, the approval is required from the manager.

 But he was not willing to let go of such a huge amount of sales, so he offered a 15% discount to Brendan. But as soon as Brendan approaches Golden Gate Technologies (GGT) Ltd for signing the contract, he is refused by the manager of the company on the ground that George is incapable of offering more than 10% discount to any of the customers as per his contract with the company. The legal position of Poolworths Ltd is also questioned in this case.  

It is found that there are five components are essential for a contract to be legally binding. The first element is offer and acceptance as held in R v Clarke. There should be an agreement amongst both the parties which is assessed by the regulations of offer and acceptance. It may be expressed through an unambiguous indication i.e. offer by a party i.e. offeror through an inclination to be legally bound on various terms of the contract. It is complemented by a communication by the other party i.e. offeree to the offeror of a definite consent regarding the offer.

The second component is the consideration. A contract shall be enforceable only if it has a justified amount of consideration as held in Australian Woollen Mills Pty. Ltd. v. The Commonwealth. Consideration is an amount to be undertaken or not to be undertaken in a specific contract. The third component is the capacity. Contractual capability refers to the capability of each of the parties to execute a legally binding contract. Drunks, minors and mentally impaired persons do not possess sufficient capacity to enter into a contract. However, a reasonable person is assumed to have a contractual capability. When there is a lack of capability, the contract is deemed to be void (Yogaratnam and Xynas, 2018).

The fourth component is the intention. The parties must be intended to create legal relationships. A contract is assumed to be a legally binding agreement if the offer has been accepted.  The component of an agreement which converts it into a true contract is the motive of parties to create legal relationships. If there is evidence of intention in a contract, then legal obligations would arise in which any of the parties can be sued. The fifth component is a certainty. In order to execute a contract, the agreement should be certain such that the obligations and rights of parties are identifiable and enforceable.

With reference to the given case, a unilateral mistake is an error pertaining to a calculation or a perspective concerning the basic presumption on which the contract has been executed. The general rule concerning unilateral mistake is that if the non-mistaken party did not know or had no reason to know the mistake of the other party, then the contract shall not be void.

Application 

In the given case, George was approached by Brendan, CIO of Poolworths Ltd. for purchase of software worth $2 million. George happily agrees to give a discount of 15% to him. Afterward, Brendan sends a confirmation email to George saying that he accepts his offer and shall visit his office for signing the contract. But upon his arrival, he was refused by the manager of Golden Gate Technologies that George is not authorized to provide discounts of more than 10%. So the deal is not accepted by the company (Lipton,  Herzberg, & Welsh 2014).

In such cases, all the five elements of the contract are applicable and hence this contract is legally binding over the parties. The first element is offer and acceptance. It was a clear indication on the part of George as offeror and Brendan as offered to execute a contract providing a software worth $2 million on a discount of 15%. So there was an offer and acceptance on the part of both the parties. The second element of consideration is also applicable in this case. There was a consideration offered on the part of Brendan to George. The third element is the capability. Both the parties are of sound mind and capable of executing a contract as held in Hart v O'Connor.

The fourth element is the intention of the parties to create legal relations. Both the parties are aware of the legal consequences of entering into the contract of George and Brendan intend to enter into a legal contract and are aware of the consequences of entering into the contract. The fifth element is a certainty. The contract must be complete and it should illustrate the rights and obligations of both the parties. In the given case, the contract enforces and identifies the rights and obligations of both the parties. Lastly, as held in unilateral mistake, if the other party was not aware of the mistake committed by the first party, then the contract is not void.

Conclusion  

Hence to conclude, it can be said that on the basis of above-mentioned regulations of Australian u,  GGT is legally bound to enter into a contract with Poolworths Ltd and to give a discount of 15% on the purchase of software worth $2 million by the company. 

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