HA3021 -COMPANY LAW CASE STUDY Total Length XXXXXXXXXXwords Assessment Marks available -20 marks Due Date – Week 10 QUESTION 1 (4 Marks) Nicola and May are partners in a business which operates a...

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HA3021 -COMPANY LAW CASE STUDY Total Length XXXXXXXXXXwords Assessment Marks available -20 marks Due Date – Week 10 QUESTION 1 (4 Marks) Nicola and May are partners in a business which operates a second-hand book shop. They have two employees working for the business. The shop is located in leased premises. The business is doing well and has been profitable for them. An opportunity has arisen to purchase two second-hand book shops in nearby suburbs. Nicola and May are keen to expand their business. They will need a large injection of funds to purchase the additional businesses.
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HA3021 - COMPANY LAW CASE STUDY Total Length XXXXXXXXXXwords Assessment Marks available - 20 marks Due Date – Week 10QUESTION 1 (4 Marks) Nicola and May are partners in a business which operates a second-hand book shop. They have two employees working for the business. The shop is located in leased premises. The business is doing well and has been profitable for them. An opportunity has arisen to purchase two second-hand book shops in nearby suburbs. Nicola and May are keen to expand their business. They will need a large injection of funds to purchase the additional businesses. They will need to appoint a manager to at least one of the shops, as they will be fully occupied by the other two. Nicola is concerned about her potential liability for the debts and liabilities of the partnership. Also, she is concerned about the future of the business if one of them should decide to leave, as the lease is in both of their names. Advise Nicola on the advantages and disadvantages of incorporating. If you recommend incorporation, what form of incorporation would be the most appropriate? Why? QUESTION 2 (8 Marks) Marcia is an entrepreneurial 17-year old with a busy window cleaning business. She is studying for a commerce degree. She wants to incorporate her business. She wants to become an employee of the business so that she can be covered by workers' compensation and superannuation. She completes the registration documents for a proprietary company. She uses her own name as the sole director/shareholder but falsifies her date of birth (showing she is 19 years old). ASIC subsequently registers the company having no knowledge of the fraud. A) If the fraud were discovered what could ASIC do about the company? Now assume a slightly different scenario. Marcia does not register her company until she is over 18. She wants to call the company "Marcia's Guaranteed Sparkle Pty Ltd". B) Will Marcia be able to...

Answered Same DayDec 20, 2021

Solution

Robert answered on Dec 20 2021
3 Votes
Answer 1
Nicola and May cu
ently operates a second hand book business in the leased shop and is
very profitable. Both are partners. They are now thinking of expanding the business and
want to acquire two second-hand shops in the subu
s. Since both of them will be occupied
with the existing shop and one new shop, there is a requirement of a manager to run the
second shop to be purchased.
Nicole is concerned about her potential liability for the debts and liabilities of the business
and thinks that she will be in a fix if May decide to leave the business.
Nicole should think of incorporating a Company or a Limited Liability Partnership to hedge
herself from the above risks.
Advantages of incorporating a company
1) Separate legal entity – Cu
ently, Nicola and May are into simple partnership. In
partnership, liability of the partners is joint and several. Nicola may have to pay
penalty or any other legal action if May commits any default or wrong-doing. Further,
in the event of liquidation of their business, even the personal property of Nicola can
e attached to pay off the debts and the liabilities. Incorporating a company will
hedge Nicola of these liabilities. In a corporation, liability of the members is limited,
and their personal property cannot be attached in the event of winding up of the
company. Both Nicole and May can become the members and directors of the
company and run their business. Further, Nicola will not have joint and several
liability and will be shielded by any wrong doing by May.
2) Restriction on transfer of shares – Nicola fears that May may leave the business and
it will be tough for her to handle all three shops. In that event, incorporating a
company helps as they generally in a closely held company one can put restrictions on
the transfer of shares. Nicola can be assured that May may not be easily able to
alienate herself by selling its shares.
3) Raising new capital – New capital can be raised if in the future May decides to leave
the business. In that scenario, Nicole may rope in a new partner by selling the shares
of the incorporation. Further, if in future Nicola and May decides to expand its
usiness and needs money, fresh capital can easily be raised. Further banks are also
more willing to lend money to corporations.
4) Tax advantages – Further, individual tax rates in Australia is at a maximum marginal
ate of 45% whereas corporate tax rate is approximately 30%. Incorporating a
company can lead to huge tax savings for Nicola
Dis-advantages of incorporating a Company
1) Statutory compliance costs – Companies have to comply with lots of legal
formalities and hence the compliance costs will increase on incorporation of the
company. They will have to file various annual returns and also contribute to social
esponsibility initiatives which only adds to the costs and time involved
2) Double taxation - Incorporating a company leads to double taxation, as first the
company has to pay income taxes on its net income and then the members have to
pay tax on the dividends received.
Advantages of a Limited Liability Partnership
1) Separate legal entity – As discussed previously, Limited Liability Partnership also
has separate legal entity and all the benefits discussed above apply here as well
2) Restriction on transfer of shares – Nicola fears that May may leave the business and
it will be tough for her to handle all three shops. In that event,...
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