Steps To Incorporate And Register A Company: Essay On Advantages Of Company Structure For Olive Business.

Benefits of incorporating a company for expanding olive business

1. Richard has an extensive olive grove in the Hunter Valley region of NSW. He has around 12,000 trees established and has recently purchased his neighbour’s adjoining property with a view to expansion.

His business is flourishing and his two sons, David and Liam, have recently moved from Sydney to help him expand the business. They see opportunities opening up in new markets and would like to become further involved in the business. They want the family business to be in a form that would allow it to expand as necessary and also make it easier to raise the capital required for this expansion. They have also heard that there are tax benefits in operating a business through a company structure rather than as a sole trader or partnership. They persuade their father to take advice on turning the family business into a family-run company.

There is some contention regarding the naming of the company. Richard prefers to name the company after themselves – “Ridali” – whereas David and Liam prefer the name “Rich’s Guaranteed Olives”, in honour of their father.

Advise Richard and his sons of the steps that need to be taken to incorporate and register a company.

2. Terry was an employee of Cosmo Mining Services Pty Ltd (CMS). CMS is a subsidiary of Cosmo Mine Ltd (CM) as CM owns 120 of the 200 issued shares in CMS. CMS owns and operates a lead, zinc and copper mine at Gunbarrel, Western Queensland. CM has an arrangement with the New Vision Bank Ltd whereby it leases all of the mining equipment and then subleases the equipment to CMS which pays CM a leasing charge per annum equal to the bank’s leasing costs plus 10 per cent. 

Recently, CMS has attracted considerable media attention as scientists have discovered that CMS’s mining activities have contaminated a nearby river which supplies the water to the mine and Gunbarrel. A number of Gunbarrel residents and former employees, including Terry, have contracted cancer because they drank the contaminated water. The CMS shareholders call a general meeting for the purpose of addressing CMS’s potential liability to its employees (current and former) as well as the residents of Gunbarrel. The CMS shareholders unanimously vote in favour of selling CMS’s business to a newly formed company, Lazarus Pty Ltd, and winding up of CMS. Advise Terry if he can take action against Lazarus Pty Ltd, CMS and/or CM.

1: After analysing the facts of presented in the case, it can be said that Richard and his son can achieve benefits if they seek the assistance of a company in order to expand the business. The benefits available for setting up a company are better if compared to a sole trader or partnership. The assistance and involvement of a company can help in expanding the business. This is simply because of the fact that it is easier for a company to raise funds (Kraakman et al., 2017). Although the cost for the registration of a company is higher than a sole trader or partnership, it can be considered as expenditure incurred for business purposes. The registration of a business name can be cheaper as compared to the registration costs required for a corporation. However, in cases like this, benefits may not be available. Paolella & Durand (2016) stated that the incorporation of a company could lead an individual to ignore the registration of a business name. The registration of a company leads to the addition of the term “Pty Ltd”. According to Abraham (2017), as per the laws, it is necessary to renew the registered name of a business. The Government charged a fee for the purpose of registration of the name. On the other hand, corporations need to pay an annual fee to the Australian Securities and Investments Commission (ASIC). Hence, the involvement of the company can be beneficial for Richard and his son. They can raise fund for improving the present condition that they are currently facing.

According to Avraham (2014), one of the most advantages that can be achieved with the incorporation of the company is the fact that the business owners need to have a limited liability on the business. As per the business laws, in a company, the directors and shareholders are only responsible for any mishaps that occur in a company. However, the liability is limited only to the shares that are held by the directors and shareholders. In the case of the partnership or sole traders, the owners are considered to be responsible for everything that goes on in the business. Wright (2017) stated that the minimising of taxes could also prove as an advantage if a company is incorporated. Nominal tax is required to be paid by a business if it is registered as a company, whereas the requirement for a flat rate tax is needed by the business. Thus, this provides a less payment of tax as compared to by the individuals. The company registered in its own name can own contracts and property. Hence, it can be said that a business enjoys every legal benefit after its registration as a company. The law treats the company as a separate legal entity. Hence, it can be said that a business registered as a company enjoys numerous benefits that can help in conducting a successful and legal business.

Advantages of company structure over sole trader or partnership

Selection of a business structure is an important criterion for effectively running an organisation. The owners of a business need to select a business structure that is appropriate and can help in the smooth operation of a business entity (Harris, Hargovan, Adams, 2015). In the present case study, Richard and his sons decided that they needed to reduce the recovery that is necessary for the expansion of the business. In order to take the decision in a successful manner, the overall circumstances are needed to be considered. As per the case study, Richard had to purchase the property owned by the neighbours in order to expand the business. The sons of Richard, David and Liam have also joined in the family quest of expanding the business. Hence, after analysing the scenario, it can be said that the proper structure that is required for the business is the company structure. This is mainly because of the fact that funds can be raised after the incorporation as a company (Pentony et al., 2009).

The naming of the business spurred some debate, as Richard wanted to name the business as "Ridali". On the other hand, the sons of Richard wanted to honour their father by naming it as “Rich’s Guaranteed Olives”. Crosling (2009) stated that the registration of a company is not the same as registering a name of the business. Certain issues need to be considered while selecting the name for a company. Some of the conditions that are required include keeping in mind the fact that the name of the company does not be identical to an existing name of a different company (Finch & Milman, 2017). Hence, it is necessary for a business to conduct a name availability search in order to ensure that the name selected for the company is legit and is not used by other companies. However, in some cases, the laws allow companies to use identical names. In the same manner, certain words cannot be used as it may mislead the public. For example, words that can be related to an association, royal family or ex-service organisations cannot be used.

According to Klausner (2013), it is necessary to indicate the liability of the owners and the members in the name that is registered in the organisation. For example, words such as "Private Limited" or "Pty Ltd" is required to be incorporated in a company that has any unpaid amount due that considers the shares paid by them. However, "Proprietary" needs to be used if the members have unlimited liability regarding the obligations. An option is made available to the owners if they are to change the name of the business (Hanrahan, Ramsay & Stapledon, 2013). A company can also incorporate a business name. In the present case, Richard and his sons, the name “Rich’s Guaranteed Olives” can be registered as one name, while “Ridali” can also be used as a business name. Hence, the name “Ridali” can be used for trade and the signing of any legal documents of the company. Thus, Richard and his sons can easily keep both the names.

Choosing a name for the company

2: Based on the evidence from the case study, it needs to be decided whether Terry and the employee concerned can sue Cosmo Mine Ltd (CM). The employees described in the case study is working for Cosmo Mine Ltd. CM is considered as the subsidiary of this company. However, a unanimous decision was made in which the shareholders of Cosmo Mine Ltd decided that the company will be sold and a new company will be created replacing the business of Cosmo Mine Ltd. The company would also be wound up. The case study explores the possibilities whether Terry and the employees can take actions against the new company, or against the parent company or against the employer of Cosmo Mine Ltd.

According to Vermeesch & Lindgren (2005), the corporate law rule that can be applied to cases as these are termed as a notion of separate legal entity. Certain cases applied the law in which it was stated that a corporation has a distinct legal personality. One such case that had the application of the law involving the decision of the court is the case of Salomon v A Salomon & Co Ltd in 1896. The legal personality that the court has is described in this case. Hence, the doctrine provided that under the corporation law, every corporation have a separate legal entity. Hence, a registered company have a separate legal entity that is different from the owners of the business. Hence, the law can allow a company to own property using own name (Strine, 2014). At the same time, the liabilities of the company can also be enforced in the company itself. Hence, a company can also be sued in its own name. Another doctrine that was introduced by the courts involved the limited liability. The doctrine supports that liabilities of the corporations can be enforced against corporations that are not independent. Hence, as stated by Johnson & Millon (2014) the debts and obligations are enforceable against the company and the directors or the shareholders play no part in such cases.

However, there are certain exceptions that are present despite the fact that the rule mentioned above is a general rule. The exception has curved many loopholes in the corporate world (Phillips, Turco & Zuckerman, 2013). The corporate laws allow the courts to ignore the principle of separate identity; hence, the decisions that are taken in order to pierce the veil of the corporate world are taken by the court. These decisions can be taken by the court in case they want to impose liability on the people having control over the company. It has been observed by Bruner (2017), that the in the tort law cases related to negligence can form a relationship of proximity that exists between the parties concerned. In this regard, a similar case can be related to the issue that concerns the corporate veil. The case of Barrow v CSR Ltd (1988) can be identified as a prime example. In this case, it was seen that the parent company need to be held liable for the tort that the employees committed to the subsidiary company undertook. The result of this led an employee to suffer from asbestosis. The court stated that the use of agency law did not matter for describing the case. There were many ways by which the issue was described (Mitchell, 2015). It was used as proximity between the employees along with the use of subsidy companies. The piercing of the corporate veil was also used along with the description in terms of control (Beekes, Brown & Zhang, 2015). The result that can be derived in all the cases is considered the same. A similar case can also be related to the negligence. The case of Briggs v James Hardie & Co Pty Ltd (1989), the court had to handle a case that considered pacing the corporate veil along with the notion to foresee the ability.  

Steps to incorporate and register a company

The cases described above can be best used to understand the tort law. Welsh (2014) observed that in both the cases the subsidiary parties did not have resources for compensating the party. The tort law provides the impression people suffering lack of compensation may claim it from the parties that control the subsidiary company. Due to the legal position that has been stated in the case, Terry and the employees have the opportunity to claim compensation form the parent company. In this case, the parent company is referred to as the CM. In this regard, it can be said that the shareholders of the company have agreed in a unanimous manner to wind up the business of Cosmo Mine Ltd and sell it to a company named Lazarus Pty Ltd.

Goldberg, Sebok & Zipursky (2016) stated that Lazarus Company has been formed with the view that the liability of Cosmo Mine Ltd against the former employees and the residents of Gunbarell can be reduced. The main reason for the selling is the fact that the people have incurred cancer having drunk water that was contaminated. This is the action of Cosmo Mine Ltd and as a result, the company was being sold. However, the situation suggests that Cosmo Mine Ltd does not have the resources required to pay the compensation that it holds. However, the parent company CM have the ownership of 120/200 shares of Cosmo Mine Ltd. In this regard, it can be said that CM hold control over the activities of Cosmo Mine Ltd. The equipment used for mining are leased by the parent company, which led to the subleasing of the equipment to the subsidiary companies.

After analysing the situation, it can be said that Terry and the employees may be granted an opportunity by the court to take legal actions against the parent company as well as Lazarus Pty Ltd. They can claim compensation for the ignorance that has been caused.  This may lead the courts to pierce the corporate veil and impose liability on the people who impose control over Cosmo Mine Ltd.     

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