LEGL2002 Essay: Law Of Business Organisations.

Stan has been a shareholder in the bakery since 1990. As it is, it is important to notify shareholders of the way forward of the business, its operations and the transfer of business ownership. The ownership of the company changed in the year 2005 from Byrne family to Grabit Ltd. As shareholders, Stan and the other 15 shareholders should be informed that the company is transferring ownership as they are also part and parcel of the business. The business has deteriorated since the transfer where Stan claims is due to poor commercial judgement and bad management on the side of the new owner which has also led to loss of business. Secondly, the reserves of Downs are being used to fund a gaming business contrary to ethical business practises and where the other shareholders are involved in a campaign sensitizing against gambling.

In this case, Stan concerns can be resolvedon the operational side but not on the transactional side. Grabit Ltd owns a majority stake and in voting, it would carry majority of the decisions being made. However, he may seek legal redress in a court of law where he can raise the following issues hoping to steer the company in its original profitable rout.

William and Henry, have formed Australian Wines Pty Ltd. This is a distribution company that will be tasked with distributing wine locally and oversees. They solicit the services of their cousin Peter who is a solicitor to ensure that the company operates within a time frame of six months. It is important to note that companies are legal and independent persons with their own assets and liabilities at their disposal. The shareholders are also independent from the company.

a) Michael, the managing director of Bridgestone Ltd, is authorised to make purchases on behalf of the company up to a value of $100 000.00. The prior approval of a purchase by the board is required where the transaction value is greater than $100 000.00. A clause to this effect is set out in the company’s constitution.  Recently, Michael purchased goods worth $275 000.00 on behalf of the company.  Due to pressure of work, he failed to obtain the prior approval of the board before making the purchase.  Because of this, the board

wants to avoid the contract.  Is it able to do so?

The board is able to do so. This is because in the rules of engagement, Michael is capped at a transaction value that is not greater than $100,000. Legally, he went overboard and therefore the contract signed can be annulled by the board based on the approval limit.

According to the Corporation Act , the only form of business that is recognizable is that which has been incorporated under the law. In this case, only the partnership is recognizable under law as the company is not yet incorporated. However, since Tom and Douglas are partners in a recognized travel and tour company, they should be held liable and be forced to pay for the office equipment and stationery as it is assumed that the items belonged to the partnership.

According to the corporation Act only a shareholder with shares valued at 5% of the voting rights can request directors to call a meeting. The 999 shares represent only 1% of the total shares an so Rufus has no power to ask the directors to call for a meeting.

Companies are independent legal persons with ability to transact on their own and having their own assets and liabilities. Therefore, Sidpnuex Pty Ltd cannot recover amount owed by Express coaches Pty Ltd from Inter-City Travel Ltd even though it is a fully owned subsidiary.

When a company is liquidated, there is an order in which debt owed by the company are paid. The first stakeholders to be paid are the creditors then shareholders as the last stakeholders to be paid. Thus, when liquidation is done, Barney should be the first to be paid.

(a) Cosmopolitan is not liable to pay for the goods , as Arthur was not given approval by the board to transact. If there was no authorization from the board then this could be termed as abuse of office.

(b) What are the legal consequences to the following persons if the company issues the prospectus:
(i) the directors present at the meeting?;

the directors could be sued for presenting false information about the company.
(ii) the auditors who consented to being named in the prospectus, as having audited the accounts set out in it and as having verified current holdings of plant and stock?

The auditors can loose their practicing certificates for being involved in a scheme to falsify information about a company Coonwyn Ltd.

Radiant is not liable to pay for the central apartments because decisions that may affect are supposed to be made by the two directors.

Elizabeth cannot be removed as a director through internal mechanism because they own equal voting rights. However, Elizabeth can be removed through a court process if Philip proves that she violated the company’s memorandum.

Elizabeth is liable for the amount made in purchasing the three houses.

(i) to Radiant; and (ii) under the provisions of the Corporations Act?

Radiant as a company has no liability in this transaction.

Has Elizabeth exposed herself to any liability?    

Yes . Elizabeth has exposed herself to multiple liabilities and may as well face legal suits for professional negligence. The managing director of Truckers limited is colluding with the directors of Gearco. Elizabeth has no idea that she is signing cheques and other financial reports like the interim balance sheet for fraud purposes. Although she is innocently signing cheques , she has not done due diligence in order to ascertain if the allegations made are true or not. She certainly knows the rules and procedures but she is by passing the process without taking precautions. As a result the company has suffered losses and therefore Elizabeth should take personal responsibility for any liability that is received.

Briefly explain how the Corporations Act and/or case law provides for, or affects the following situations:

Under Companies Act 2006, Chapter 47, Part 2, Section 7 (1)A company is formed under this Act by one or more persons (a) subscribing their names to a memorandum of association (see section 8), and (b)complying with the requirements of this Act as to registration (see sections 9 to 13). (2)A company may not be so formed for an unlawful purpose. Therefore , a company is a Separate legal personality and limited liability are not the same thing. Therefore the solicitor can sue the company for refusing to pay.

Holders of ordinary shares are typically entitled to one vote per share, and do not have any predetermined dividend amounts. An ordinary share represents equity ownership in a company proportionally with all other ordinary shareholders, according to their percentage ownership in the company. On the other hand preference shares have a fixed return and no voting rights.

The process involved inorder to include these statements in the prospectus is that the financial statements must be certified by a CPA.if Tom provides untrue  financial statements he can be sued if a person who depended on the information provided by Tom in the prospectus suffers financial loss after using the information.

This is a company which has a single owner as a proprietor. The advantages include;

• Easy to form and disband
• Decisions are made by one person therefore are fast decisions
• Profits are not shared

Its acts as a binding article to rules of operations of the company

Allen, William t, Commentaries And Cases On The Law Of Business Organization (Wolters Kluwer Law & Bus, 2017)

Schneeman, Angela, The Law Of Corporations And Other Business Organizations (Delmar Cengage Learning, 2013)