Corporation Law- Running Business as a Company

QUESTION 1

Advise Michael and his sons of the steps that they need to undertake for incorporate and register a company and also advantages and disadvantages of running a business as a company.

Case summary

Michael owns a restaurant as a family business. By identifying prevailing opportunity and growth Michael purchased an another restaurant for the purpose of expansion. His son want to get converted this family businesses in a family run company. In addition to they want to change name of the company as “Sicilian Treats”. Michael is not able to understand any benefit for running a company. Also, he is in trouble that his son might push him out of the business.

Issue

Advise advantages and disadvantages of running a business into a company. Also, the steps for formation and incorporation of company so that trouble of push out from business can resolved along with change in name of business.

Rules

Companies law : The Australian company law provides guidelines, regulation and rules to comply with every company running in the country. The company law prevents, monitor and control activities of business of a company in order to ensure elimination of misrepresentation, fraud and other activities. The corporations act 2001 and companies act 1961 are covered under company law of the country. The act under these laws provides a range of guidelines, standards and rules which need to be complied with the company at the performance time with various activities of businesses. The law consist of rules and laws which are related to activities that begins from incorporation and ends till liquidation.

Formation of a company : The company act, 2001 provide numerous rules, regulation and guidelines which need to be followed by promoters for formulation of a company. The law provides certain steps to form a company (Benyam, Rolfe, and Kinnear, 2019).

• Firstly promoters need to choose legal structure of business like sole trader, company, partnership, trust, etc (Ingram, 2015).
• Then, after choosing legal structure business type need to choose by entity such as online business, franchise and independent contractor.
• After this, business need to register in Australian Business Number (ABN). The businesses need to fill various forms for this purpose.
• Then comes, choosing a name of businesses which should be identical and not similar to any other business running in the country.
• The appropriate name chosen by the company need to be registered on this stage.
• After that domain name need to registered for the company.
• Memorandum of association and article of association set up for the company at this stage (Rimmer, 2017).
• The documents as per corporation act 2001 need to create and maintain on this stage.
• The ownership of company set up.
• The companies registration executed by applying on Australian Government Business Regulation Service.

Business restructuring : The business is decided to convert into a different type of structure of business. The resultant is in adapting overall business controlling as well as ownership structure.

Incorporation of a company over a sole trader : Incorporation of a company avails various benefits to their owners along with certain disadvantage for the formation of a company.

Advantages

• The company holds limited liability of owners i.e. shareholders of the company over debt of a company to a share hold by them (Rowland, 2016).
• The shareholders of company aren't liable for the companies to pay tax on profit whereas in sole proprietor there is no such benefit avail to owners.
• The benefit of company is that owners have separate legal entry than a company according to The Corporation Act, 2001 (Bray, and Rasmussen, 2018). With this law, the company could remain running even after owner's death.
• The ownership of a company can easily be transferable through selling shares to other company or party.

Disadvantages

• The company required huge amount of cost in formation which term as the biggest disadvantage of companies formation (Kraal, 2019).
• Also, the company while incorporation need to ascertain various formalities including legislation and documentation (Benyam, Rolfe, and Kinnear, 2019). This way the company incorporation is a complex legal process and requires huge amount of time and money.
• Corporation Tax is to be paid by the company every year on the profit which is generated by them during a specific time.
• The incorporation as well as winding up process of a company is very lengthy and difficult for a company because it increases their expenses (Bray, and Rasmussen, 2018).

The structure of ownership of a company : It is necessary to develop memorandum of association and article of association at the time of incorporation of a company. The clause of directorship and ownership in these documents where the directors name should be written so that to remain control of ownership. Also, this clause requires shares amount which held by every direction of the company. The name of directors which is mentioned in article of association and memorandum of association are owners of the company and holding of shares remain same until any change in these documents.

Application

The rules which are mentioned above for the company law are applicable on present scenario case. By the application of these rules, it has been analysed that Michael and their sons decided to convert their business into a company (Clapham, 2015). Therefore, they need to follow all the stages of incorporation of company which was specified above which comprises of Companies act, 1961 and Corporation act, 2001. It was also mentioned in the case that they want to change their name of business for incorporation. Therefore, the chosen name should be identical and any similarity with other existing Australian business should not be allowed.

Conclusion

The above rules of corporation act, 2001 has been analysed and it has concluded that the application of this law on current scenario will be advise to Michael that he must be agree with their son's idea of converting existing business into a company because this incorporation provide several benefits to them (Solaiman, and Ali, 2015). The trouble of pushing Michael out of the company will be solved by ensuring his name in list of directors along with amount of shares he want as a profit.

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QUESTION 2

Advise the Poolworths Ltd about their legal position

Case summary

A salesman George of Golden Gate Technologies (GGT) Ltd who has developed a software. George is allowed to provide a maximum discount of 10% to their customers. CIO (Chief Information Office) of Poolworths Ltd that is Brendan approaches to George for purchasing software. George provided him discount of 15%. After further discussion with colleagues it has found out that the salesman are not authorized to offer discount of 15%. When Brendan contacted with managers of Golden Gate Technologies Ltd, they refused to accept discount of 15%.

Issue

A major issue in case is to analyse Poolworth's legal position and also analysing contract validity between Brendan and George.

Rules

Contract law – Australian contract law provides various regulations and rules which should be followed by every person of country while entering into contract. This law provides several terms which makes a valid contract. Also, as per the contract law of Australia failure in contract will lead to a void contract which means it can't be sued in the court.

Terms for creating a valid contract are :

• Offer – It is a basic requirement of a contract which can be termed as investigation done on other party for denying any specific performance or activity.
• Acceptance – According to the contract law, the person whom offer is made agree to perform activities as per the contract terms is called acceptance (O’Leary, 2016).
• Consideration – It is an important condition for contract formation. Every party in a contract gets something in return for the performance of another party. Consideration is always in monetary terms.
• Contract – An offer gets accepted by party whom offer is made. Also, with consideration amount the agreement is made between parties is called as contract (Giancaspro, 2017).

Capacity to contract - This term is need to be fulfilled while contract development. According to this contract law clause, every party in an contract must be in capacity to enter into a contract (Kraal, 2019). The person who is not capable to enter into contract and has made a contract than it will be termed as void contract which can not be a part of law suit. The criteria which is provided by contract law for analysing capacity to contract are :

• No contract with a person who is minor (Benyam, Rolfe, and Kinnear, 2019).
• No party of contract should be facing mental disorder.
• Bankrupt are not allowed to enter into a contract.

Outcomes of void agreement – This kind of agreement can not be suit in court hence there is no enforcement of law are done when contract becomes void. No party can sue to another party with whom they came into contract. Also, no legal right would be exercised by them on void contract.

In Hamilton v Lethbridge (1912) 14 CLR 236case, Hamilton and lethbridge entered into a contract but lathbridge was a minor. Lathbridge agrees to serve for five years as articled clerk for the plaintiff who is a lawyer in Toowoomba (Hamilton v Lethbridge (1912) 14 CLR 236,2018). After a year, Lathbridge start practicing as solicitor in Toowoomba claiming that he is a minor and contract became void because of the capacity to excise legal rights.

Application

By analysing the above rules it has been analysed that George was authorised only to give discount of 10% to customers. An agreement in which he entered into was for availing 15% discount to Brendan and this was beyond the capacity of George. The rule of contract law regarding to contract capacity can be applicable over current scenario of George. Also by analysing the above case person's legal authority who entered into contract is not capable to enter into contract. Therefore, this case is also applicable in present scenario case.

Conclusion

By the application of rules on above case to present scenario's case, it has been analysed that George is not incapable to contract. Therefore, the contract between Brendan and George considered as Void. Also, by applying this case it could be concluded that person who is incapable to enter in contract does not have legal authority for the person. In addition to this statement, Brendan has entered into contract on behalf of Poolworths Ltd and the company will be in same capacity as like Brendan. It is advised to Poolworths that Brendan entered in contract with person who is not capable to enter in a contract as with not have legal authority against GGT Ltd.

CONCLUSION

This report was all about business law in which this report was consist of two case studies. The first case was about Michael and his son and this report was providing advice to undertake for incorporation of a company. Another case was about Poolworths ltd where it was concluded about capacity to contract and George incapability to make agreement because of legal position.

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REFERENCES

• Ingram, P., 2015. Tax files: Tax reforms in the state budget.Bulletin (Law Society of South Australia).37(7). p.8.
• Kraal, D., 2019. Petroleum industry tax incentives and energy policy implications: A comparison between Australia, Malaysia, Indonesia and Papua New Guinea.Energy Policy.126. pp.212-222.
• Clapham, P. J., 2015. Japan׳ s whaling following the International Court of Justice ruling: Brave New World–Or business as usual?.Marine Policy.51. pp.238-241.
• Rowland, N., 2016. CEO's report: Tax and small business-there's work to be done.Taxation in Australia.51(5). p.235.
• Rimmer, M., 2017. A Submission on Indigenous Intellectual Property to the House of Representatives Standing Committee on Indigenous Affairs and the Museums Galleries Australia-Indigenous Roadmap Project.
• Bray, M. and Rasmussen, E., 2018. Developments in comparative employment relations in Australia and New Zealand: reflections on ‘Accord and Discord’.Labour & Industry: a journal of the social and economic relations of work.28(1). pp.31-47.
• Solaiman, S. M. and Ali, A. N. M. A., 2015. The most serious offenses and penalties concerning unsafe foods under the Food Safety Laws in Bangladesh, India, and Australia: a critical analysis.Food & Drug LJ,70, p.409.
• O’Leary, P., 2016. 17 Neoliberal policy and employer industrial relations strategies in the United States and Australia.Reclaiming Pluralism in Economics, p.265.
• Benyam, A., Rolfe, J. and Kinnear, S., 2019.Willingness to Pay for a Domestic Food Waste Diversion Policy Option in Regional Queensland, Australia(No. 2186-2019-1405).
• Giancaspro, M., 2017. Is a ‘smart contract’really a smart idea? Insights from a legal perspective.Computer law & security review.33(6). pp.825-835.

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