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. 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 register the company with this name? If so, how can she
ensure that no one else uses it before her company is registered?
C) Is Marcia required to have a registered office? If so, can she use her parents'
home address and, does the office have to be open to the public?
D) Does she have to display the company name and/or ACN/ABN
- on her accounts?
- outside her parents' house?
QUESTION 3 (8 Marks)
Mr. Shifty, Ms Avoider and Mr. Marginal call to make an appointment with your
firm, Fees Ruthless, solicitors. You have been asked to establish their new
company (No-Tax Agents Pty Ltd). You advise them not to bother with their own
constitution, but instead to rely on the replaceable rules in the Corporations Act.
Advise who should be appointed as directors of their company in view of the
following information:
A) Mr. Shifty states that he does not want to be appointed a director or secretary.
He suggests instead that:
• his family company be appointed as a director; and
• the company not have a company secretary;
B) Ms Avoider is currently unavailable for meetings as she has five months still to
serve for her last conviction for falsifying company accounts;
C) Mr. Marginal is 72 years old and has Alzheimer's disease. A trustee has been
appointed to administer his estate.
Assume that Mr. Shifty's family company subsequently goes into liquidation. In her
report to AS1C, the liquidator states that the secured creditors have been repaid
in full, but the unsecured creditors will not receive more than 20 cents in the
dollar. The liquidator does not find any evidence of wrongdoing on the part of Mr.
Shifty or any of his fellow directors.
D) What (if any) ramifications does this have for Mr. Shifty, assuming that ASIC's
records show that Mr. Shifty has, over the last nine months, had a similar track
record with two other small, proprietary companies?
Answered Same DayDec 20, 2021

Solution

David answered on Dec 20 2021
3 Votes
Question 1
As per the facts of the given case, Nicola and May are partners operating a second-hand book
shop. They wish to expand their business through availing of an opportunity for purchase of
two second-hand book shops in nea
y subu
s. They need additional funds for same. Nicola
has concerns about potential liability for the debts and liabilities of the association and wants
to know the advantages and disadvantages of incorporation. Further, if they go in for
incorporation, it is required to know of the most appropriate form of incorporation for their
association.
Incorporation is the act of creating an artificial and separate legal entity with limited liability.
A registered corporation is created and bound by the Corporations Act 2001. Sec 124 of the
said act grants the company the same powers as those of a natural person and thus, it can hold
property in its company name. It has legal capacity to sue others and be sued by them. It is
ound by perpetual succession, which is the characteristic of a registered company to
continue to exist independent of the existence of its members and shareholders. (Latimer,
2011). Further, sec 123 allows the company to have a common seal and enter into contracts
and be bound by them. On this basis, it can enter into contracts to raise finance through loan
and through issue of shares.
Thus, we see that there are a lot of advantages of incorporation which make it a very
desirable form of association. However, like any other form, it is not free from its
disadvantages. The most prominent amongst all is the huge costs and efforts involved in the
process of incorporation. Incorporation also places substantial duties and obligations on
directors of a limited liability company. Another disadvantage is that the ownership is with
the company as a whole, and not with the individual members of the company.
However, the advantages of incorporation far outweigh the disadvantage associated with
them. Thus, it is recommended to opt for incorporation as a form of association. Further, the
most appropriate form of incorporation would be a proprietary company limited by shares,
per section 113. This is in line with Nicola’s and May’s requirement for additional funds for
expansion and concern about potential liability for the debts and liabilities of the association.
Question 2
A) Section 206F of the Corporations Act 2001 grants ASIC the power of disqualification.
Under this section, ASIC has the power to disqualify a person from managing corporations or
from being the director of a company for a period of 5 years. It can do so after giving a notice
in the prescribed form to the concerned person. The notice presents to the concerned person
an opportunity of being heard and of explaining why they should not be disqualified. After it
is satisfied that the disqualification is justified, ASIC may disqualify the person from being
the director of the company.(Lipton, 2010). In the given case, Marcia who is a 17 year old
entrepreneur wants to incorporate her window cleaning business. She has completed the
egistration documents for the proprietary company where she is the sole directo

shareholder, but has falsified her date of birth to 19 years. ASIC has registered the company
with no knowledge of this deception. If the fraud of falsification of age by Marcia is disco
were discovered, ASIC can use its powers under Section 206F of the act, to serve notice on
Marcia in the prescribed form, requiring her to explain, why her name should not disqualified
from being the director of the company.
B) Under Section 152 of the Corporations Act 2001,...
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