The Facts reveal that a book shop is run by Nicola and May with the help of 2 employees. The business is profitable and run through a lease premise. With the view for expansion, two books shops are also purchased by them. Now, Nicola and May are acting as partnership initially, and thus, now the business can be expanded if they operate as a company.
ASIC and the Corporation Act 2001 has lady down rules and procedure for the registration of a company. As per Salomon v Salomon & Co Ltd a company is a separate legal entity in law which signifies that the company has its artificial presence and is capable to act like a natural human being. The company acts are its own and the officers are held liable for the same. But, there are few advantages and disadvantages associated with a company.
One of advantages of a company is that there is limited liability, that is, the shareholders are held accountable for the liability up to the value of their shares, thus, the shareholders are not liable to the whole of the company’s debt. Further, the acts of the officers are in the name of the company and will not held them liable for the same. A company can enter in to contracts on its own, can pay tax, raise finance, etc. shares can be issued by the company so that money can be generated.
But, the disadvantages includes that the process of registration is very time consuming, costly and requires lots of paper work which is very tedious job. Every company has to file annual return and auditing and reporting of the accounts of the company is compulsory to be complying with in order to avoid any kind of consequences.
At this stage, Both Nicole and May has to keep in mind all the pros and cons of a company before its incorporation. But, they have a choice to formulate either a private or a public company.
Any company which is part of the stick exchange is a public company otherwise it is a private company. The distinction amid the two companies is now analyzed keeping in mind the specific requirements of Nichole and May.
Firstly, in every public company, there must be 3 directors whereas only 1 director is required in private company, so, since Nichole and may are only two officers who are operating the business as a company, thus, they can only opt as private company otherwise they require one more director if they want to operate as a public company; Secondly, Both Nichole and May wanted to buy two book stores for the expansion and thus need money for the same. By operating as a private company, finance can be raised by securing loan from the creditors or shares can be issued to existing or new shareholders or finance can be secured from the company directors; thirdly, if any of Nicole or may wish that they want to leave the business, then the same can be done only in the company form of business because as per Salomon v Salomon & Co Ltd a company has perpetual succession and it never does, even of all the members cease to b part of the business. Thus, of Mat or Nichole wants to leave the company still the company remain to continue its working; fifthly, May and Nichole can limit their liability as by operating as a company their liability will be equivalent to the value of their shareholdings only; sixthly, May and Nichole wants that a manager must be hired so that they can take care of the other two shops and the appointment of the manager is easy by appointing manager they are not making him part of the management and thus they can retain the control of the business.
Hence, May and Nichole must operate their business as a private company and thus limit their liability and can also higher manager and can easily raise finance from the market.
Can Clare sue Zio Pty Ltd, if yes, then, what are the remedies available??
The solution analysis an important question, that is, whether an employee can sue the company if his is removed from the post of the solicitor?
As per Salomon v Salomon & Co Ltd a company is a separate legal entity in law which signifies that the company has its artificial presence and is capable to act like a natural human being. Section 124 retreats the separate legal entity principle. The law recognizes the company officers as distinct from the company.
Now, every company requires guiding force for it working and thus as per section 141, replaceable rules can be followed OR constitution can be framed OR the company can be run by both. As per section 140 of the Act, when a constitution is adopted, then, a contractual relationship is formed amid the members and the constitution. The rights amid the members and the company are enforceable, but, a member can only sue the company provided his member right is violated and is held in Hickman v Kent or Romney Marsh Sheep-Breeders Association. If the rights of the member are not violated, section 140 of the Corporation Act 2001 is not applicable..
Zio Pty Ltd was incorporated in 2015 and adopted a constitution. Max and Angus are its directors/shareholders. Clare is the wife of Max and is appointed company solicitor. Later Clare services are terminated.
Now, Clare cannot sue under section 140 of the Act as the termination of Clare service does not hamper any of his rights as members. The termination is only a contract breach and thus such termination is not the violation of section 140 of the act.
So, Clare cannot sue the company for the non compliance of the provision of the constitution, but, can sue the company in court for breach of contract.
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