You recently commenced working at a professional consulting services firm called “XYZ Consulting” in the Sydney You work in the legal compliance team and utilise your knowledge of commerce and law acquired from LAWS20059 to advise a diverse range of clients. You specialist in advising clients on how Australian law governs business structures in the operation of commercial activities.
Giovanni is a trained pizza maker who worked for 10 years as the head pizza maker at a national pizza chain called “Molto Bene”. His wife, Sandra, said to him one day: “your pizzas are terrific, you should start a pizza shop”. Giovanni thought that was a wonderful idea, so he began planning the grand opening of his new pizza shop. However, he only had $100,000 and the cost of starting a pizza shop was approximately $300,000 so he needed to either borrow money or invite partners to join him in the business. His aunt, Leanne, and uncle, Mick, each had about $100,000 in savings and they were keen to get into a pizza making business. They want to maintain a family business, so they do not want any outside investors.
Giovanni, Leanne and Mick go into business together and they each contribute $100,000 into the business. They call the pizza shop “Dough Magic” and they charge $19 per pizza, which gives them approximately $4 profit on each pizza if they are sold. They agree that Giovanni will receive 50% of the profits, Leanne will receive 25% of the profits and Mick will receive 25% of the profits. They want to keep start up, regulatory and compliance costs to a minimum and they all want to participate in running the business. They also want to protect their personal assets.
Giovanni, Leanne and Mick organise a meeting with your firm because they have a number of questions about different business structures.
To prepare for the client meeting your supervisor, Jonathan, asks you to write a report which:
1.identifies two legal differences between a sole trader and a partnership.
2.explains a legal partnership on the one hand, and a company on the other.
3.explains one way a business would use a truststructure, the role of each participant in the trust and identifies the three elements required for a valid express trust.
In Part A you must write a written report which addresses all the above points.
Companies And The Corporate Veil - The pizza shop is doing well and making a profit. In fact, the pizza shop is doing so well that they need to hire a pizza maker, Fabio. Fabio’s employment contract contains a non-competition clause which is designed to stop him from competing with “Dough Magic” if he ever leaves. Fabio does decide to leave Dough Magic, but he registers a company, Kings of Dough Pty Ltd, which he uses to run a competing pizza shop which trades as “Kings of Dough”. Fabio is the sole director and shareholder of the company. Giovanni, Leanne and Mick learn about “Kings of Dough” and they want to know whether they can take any legal action against Fabio and/or Kings of Dough Pty Ltd. They have heard that companies have separate legal identity, so they are confused about whether they can sue for breach of contract and have the contract enforced. Giovanni, Leanne and Mick make another appointment with your firm for a consultation. To help prepare for the meeting, your supervisor, Jonathan, wants you to write a report for him.
In Part B you must write a report which:
1.identifies one case law authority which relates to the separate legal personality principle in company law.
2.explains the separate legal personality principle and the concept of the corporate veil.
3. explains the respective role of shareholders and directors of a company.
4. advises whether the corporate veil can be lifted in this circumstance, and what it means for the corporate veil to be lifted. You must identify and apply one case law authority on point.
In Part C you are required to give simple answers as per the given questions
Your supervising partner, Jonathan, has asked you to brief your team on your work advising Giovanni, Leanne and Mick. In your answers, you must reflect on your reports for the meetings with Giovanni, Leanne and Mick to explain:
1.what business structure you would recommend for the pizza shop.
2.what you learned about the separate legal identity of companies from completing Part B of your assignment.
3.what you learned about veil piercing from completing Part B of your assignment.