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business
business law principles
Company Law An Interactive Approach 2nd Edition Ellie (Larelle) Chapple, Alex Wong, Richard Baumfield, Richard Copp, Robert Cunningham, Akshaya Kamalnath, Katherine Watson, Paul Harpur - Solutions
The importance of the business judgment to be made. Would it have a major impact on the company financially?
Did the director inform themselves about the subject matter of the judgment to the extent they believe reasonably appropriate? Did they understand the matter to be decided on?
Is the director an executive or non-executive? An executive director has a higher duty.
What steps were taken by the director (i.e. what enquiries did they make)? Did the director question the information that was given to them?
What is the nature and risk in the transaction? Is it a significant transaction that needs to be carried out?
If the delegate is dishonest or incompetent then the reliance is unreasonable. How do you check?
Does the director honestly believe that the delegate is trustworthy and competent and can be relied on? What is the level of expertise or knowledge of the person? How did the director check this person? In a company, did the human resources manager employ the right person?
What is the relationship between the director and the delegate? Are they related parties or at arm's length?
To what extent should the director be put on notice? What should the director be aware of?
Is the function delegated of a type that can be properly left to such officers? Are the people capable of doing what you delegate to them?
What are the consequences of breaching duties?
What liability do company officers have for the actions of the other officers?
What are the duties and obligations of a company officer?
Until June 2015, Marko served on the boards of several public companies, including Alexandra's Ltd, a bookstore chain. Unfortunately, due to the shift to online shopping combined with the high price of books in Australia (due in part to high wages and high rents for retail establishments),
Jack, Bill and Georgina are the only directors of Sand and Snow Ltd (S&S), a company that sells surfing and snowboarding holiday packages. They each own 10 per cent of S&S's shares. The remainder of the shares are owned by Georgina's father, Barry, who owns 15 per cent of S&S's shares, and other
Dane, Nazneen and Thamanit decide to form a new company called Clockwise Directions Pty Ltd. They decide not to draft a constitution but rather rely on the replaceable rules in the Corporations Act. As Dane, Nazneen and Thamanit comprise the current company board, advise them as to whether the
Outline how directors are appointed, remunerated and removed. 1 Under what circumstances is a person automatically disqualified from being a company director? 2 List the different types of remuneration a director may receive. 3 How can a director be removed from their position?
Describe the relative roles and powers of company directors and company members. 1 What role do directors fulfil in a company? 2 How do directors exercise their powers? 3 Briefly describe the five options available to members if they disagree with the actions of the board of directors.
Explain who is considered an 'officer' of a company. 1 Briefly describe each of the four types of director recognised by the Corporations Act. 2 What is the role of a company secretary? 3 What is a senior manager, as described by the Corporations Act?
Outline theories of corporate governance and list the key principles of good corporate governance. 1 What are the key differences between agency theory and stakeholder theory? 2 What is the doctrine of separation of powers? 3 Why do 'agency costs' arise?
Hayato, Kirra and Jon are the directors of AK Pty Ltd. The shareholders of AK Pty Ltd are Hayato (200 shares) and Kirra (one share). Hayato wants to call a directors' meeting in order to pass a resolution to declare a dividend. (a) Can Hayato call a directors' meeting? How would he go about this?
Britney and Celine are directors of Pink Ltd. Pink Ltd is a non-listed public company that is in the music promotions business. It has been running for several years at a massive loss because it has spent enormous amounts of money bringing unpopular 70s musicians to Australia. The Leo Sayer
Jacqui and Bruce are the directors of a company called Karate Australia Ltd, which runs a number of schools teaching students the ancient art of karate. Chuck is a shareholder of Karate Australia Ltd and has a number of issues concerning the way in which the karate business is being operated. (a)
Fatima owns 20 per cent of the shares in Kernings Ltd. At the recent AGM of Kernings Ltd, Fatima moved a motion that one of the directors of Kernings Ltd be removed and replaced with a director nominated by Fatima. It is now three months since the AGM and Fatima has asked you whether she can force
Janus Pty Ltd recently purchased a large farm to run its agricultural business. The purchase price of the farm was $100 million, which was funded by a mortgage in the amount of $95 million and cash that Janus had raised from its shareholders. The agricultural business is wildly successful and Janus
Outline the rules and procedures relating to dividends. 1 What is a dividend? 2 What principles determine directors' decision to pay a dividend? 3 What entitlement do members have to dividends?
Outline the rules and procedures relating to members' meetings. 1 How do the members of a company exercise their decision-making powers? 2 Who can call a members' meeting, and in what circumstances? 3 What is the difference between a show of hands and a poll at a members' meeting?
Outline the rules, procedures and rights relating to company membership. 1 What is a chose in action? 2 List the ways in which a person can become a member of a company. 3 Describe the role of the register of members.
How do members receive a return on their investment in the company?
How do members exercise their rights?
What role do members play in company management?
What rights do members/shareholders of a company have?
Assume a section in a piece of work health and safety legislation provides the following. A person shall not knowingly leave exposed live electrical wire on any construction site. Any person breaching this provision will incur a penalty of $1000.The legislation defines the term 'person' to include
Volcano Pty Ltd (Volcano) operates three surfing stores in Queensland. On 8 August 2016, Gao was appointed to the position of managing director of Volcano for a period of two years. A return was lodged with ASIC indicating his appointment as a director on that date. Gao was not formally reappointed
Wayne, Erin, Alan and Kirk are all ex-police officers and have decided to start a private security business. Due to tax and ownership issues and the obvious benefits associated with having limited liability, their lawyer recommends that they should register a company for the business. They agree
Explain the basis of corporate liability in tort and in crime. 1 What is vicarious liability? 2 Explain how liability in crime applies to a company. 3 What are some examples of strict offences in relation to company conduct?
List the assumptions a party is entitled to make in dealings with a company or its agent under the Corporations Act 2001 (Cth). 1 List the assumptions that outsiders are entitled to make in dealing with a company or its agents. 2 Under what circumstances can an outsider not rely on the assumptions
Explain the doctrine of the indoor management rule in relation to a company entering a contract. 1 What is wide ultra vires? 2 Describe the effect of the indoor management rule. 3 What are the exceptions to the operation of the indoor management rule?
Explain the circumstances in which an agent will have substantive authority in relation to a contract. 1 What is the difference between express actual authority and implied actual authority? 2 How may implied actual authority arise by acquiescence? 3 What conditions must be met for an agent to have
Explain the basis of corporate liability in contract. 1 What requirements must be satisfied for a contract entered directly to be binding by and against a company? 2 What requirements must be satisfied for a contract entered indirectly to be binding by and against a company? 3 What is meant by
Explain how companies exercise power. 1 Explain the difference between the organic theory and the agency theory perspectives of how a company acts. 2 In the organic theory, what are the 'organs' of a company? 3 What is meant when we say that a company has acted 'indirectly'?
What is a guarantee? What assets could the company provide as security to the bank? How can Julian guarantee the loan if he doesn't have security to offer - as the house is owned by his wife, Samantha.
Julian is not happy with the term loan of $160 000, but will proceed with it based on Bev's advice. You reminded Julian that the company's constitution requires any borrowings over $100 000 to be approved by the board of directors and the shareholders. This was not done.
If a customer or staff member slips on the oil or grease that the forklifts sometimes drip on the warehouse floor, would Julian or the company be liable? Julian explains that he read in the newspaper recently that a shop owner was successfully sued for having an unsafe shop after a customer slipped
Although Julian asked Bev and senior staff to enter into contracts on behalf of the company, is the company liable to pay for the goods and services ordered or are the individuals personally liable?
How can the company be responsible for anything if it is a legal fiction and does everything through people?
Kat is a property developer on the Gold Coast. She was recently offered a block of land in Surfers Paradise for $4 million. She formed a company with her boyfriend, Salek, called K&S Pty Ltd. K&S Pty Ltd purchased the land. Salek invested $4 million into K&S Pty Ltd for the purchase price of the
Identify a pre-registration contract, when it is enforceable against a company and the potential liability of parties who enter into such contracts. 1 What is a pre-registration contract? 2 Describe the three criteria that must be satisfied if a pre-registration contract is to be binding by and
Understand the potential remedies available against promoters who are in breach of their duties. 1 List the steps involved in determining whether a promoter has breached their fiduciary duty. 2 What is meant by 'rescission of contract'? 3 Under what circumstance may a court order damages for a
Outline the duties and potential liabilities of promoters. 1 Describe the fiduciary duty owed by promoters. 2 Describe the two key ways promoters can avoid liability. 3 What are the three steps a promoter will need to take if they want to enter into a contract with the company they are forming?
Identify who would be classified as a promoter. 1 What is a promoter? 2 Distinguish between active promoters and passive promoters. 3 Why does the law regulate the activities of promoters?
What are the potential consequences if Vintage Threads Pty Ltd does not ratify the contract? Consider how and why Vintage Threads might not ratify the contract. What recourse does Retrofit have if Vintage Threads does not ratify the contract?
What are the potential consequences if Retrofit Pty Ltd does not ratify the contract? What recourse does Vintage Threads have if Retrofit does not ratify the contract?
What will each company need to do to make the contract binding on both parties?
The shareholders of Zedzee Pty Ltd are Sufyaan (10 shares), Shahedah (10 shares), Hilton (10 shares) and Sue (10 shares). The directors are Sufyaan and Shahedah. Upon registration, Zedzee adopted a constitution that replaces all the replaceable rules. Clause 10 of the constitution provides: (10)
Kelly and Jordan are directors of ASP Pty Ltd and jointly own 70 per cent of the shares. Taj holds the remaining 30 per cent of the shares. The constitution provides that Taj will hold the position of the company's 'senior product tester' for the period 1 January 2015 to 1 January 2020. There is no
Adira has just become a co-director and member of Gary's company. Adira wants to amend the company's constitution to embed rules that ultimately favour her rather than Gary. In particular, Adira is proposing that Gary be paid twice the dividend amount he would normally be paid, in return for Adira
The company constitution of a new company, Happy Life Pty Ltd, stated that Willem was to be its company solicitor. Willem wrote the constitution on the instructions of the company's founder, Armin. However, Willem was never appointed as company solicitor. Instead, his arch rival Renate got the job.
Explain how a company's rules can be changed. 1 How can a company constitution be changed? 2 In what circumstances will changes to a company constitution not be binding on all members? 3 What two conditions must be met if a company wishes to change its constitution in a way that involves the
Explain who is bound by the company constitution. 1 List the three statutory contracts created by the replaceable rules/company constitution. 2 For each statutory contract, explain how each party can seek to enforce their rights. 3 For each statutory contract, explain the remedies each party can
Explain the purpose of an objects clause in a company constitution. 1 What is an objects clause? 2 Explain how an objects clause can help (a) potential shareholders, and (b) potential creditors. 3 What is meant by 'ultra vires'?
Describe the purpose of a company constitution. 1 Which companies must adopt a company constitution? 2 When is a company considered to have adopted its constitution? 3 What is a pre-emption clause?
Describe the application of the replaceable rules contained in the Corporations Act 2001 (Cth). 1 List the five main areas of the operations of a company that are covered by the replaceable rules. 2 In what way(s) are single director/shareholder proprietary companies treated differently in the
Explain why companies need a set of rules and procedures to govern their operations. 1 Why does a company need a set of rules to govern its operations? 2 What are the 'replaceable rules'? 3 What is a company constitution?
What are the factors to take into account? Would they be regarded as a group of companies? How does Julian have control of both?
Do you create separate companies for different purposes?
How does this affect you as adviser?
What if Retrofit Pty Ltd has as its object 'selling vintage clothing', but later wants to run a catering business?
What if the company does not comply with its objects clause and does something that is not within its purpose?
When do you think a company would want a specific objects clause?
Can a company's rules be changed?
Can a company constitution constrain the company or its managers from doing what they think is in the best interests of the company?
Under what circumstances might a company choose to use the default rules in the Corporations Act or alternatively choose to write its own rules, or use a combination of approaches?
Why are company rules required?
CCS Pty Ltd is registered with Mira and Aaron as its directors. CCS Pty Ltd has issued five shares, with the following persons owning one each: Mira, Aaron, Ryan (Mira's son), Janice (Aaron's daughter) and Marilyn (Aaron's friend). CS Pty Ltd operates a business that manufactures and sells widgets.
What type of company would be best suited for the following organisations? (a) A charity raising funds for cancer research (b) A major domestic soccer federation (c) Three friends who wish to start a fashion business (d) A group of 75 people who have agreed to pool money and invest in the stock
For the past several years, Rawiri has been working on a new design for the manufacture of surfboards. While Rawiri believes that the sale of his inventive surfboard will make a lot of money, considerable additional research and development is needed to perfect the design. Indeed, the first few
Nils and Caoimhe are the sole directors and shareholders of a small proprietary company called Flint Pty Ltd, and have approached their bank for a loan of $100 000 in the name of the company. In addition to the security for the loan that the company has already provided to the bank, the bank
Describe how the principle of limited liability applies to the members of a company. 1 Define limited liability. 2 Explain a member's liability in relation to the ownership of partly paid shares in a company limited by shares. 3 Explain how a director or shareholder can give up their limited
Explain what is meant by the 'corporate veil'. 1 What is the effect of the corporate veil? 2 List the circumstances in which the court may lift the corporate veil under the Corporations Act. 3 List the circumstances in which the court may lift the corporate veil under common law.
Describe the main features of a corporate group as relates to the concept of separate legal entity. 1 What is a corporate group? 2 Describe the tests to determine whether a company is a subsidiary of another company. 3 List the circumstances in which the law recognises a corporate group.
Explain the key principles of a company being a separate legal entity. 1 What does it mean that a company is a separate legal entity? 2 Why does a company require people to act on its behalf? 3 How can the powers of directors, directors' meetings and members' meetings be limited?
Outline the steps involved in starting a company. 1 List the steps involved in registering a company with ASIC. 2 Explain what ASIC will do upon registration of the company. 3 What is a shelf company?
Describe the various classes of companies that can be registered. 1 List each class of company that can be registered. 2 What are the key differences between proprietary companies and public companies? 3 Describe the liability of members in each of the key types of company.
Define a company and outline the mechanisms by which companies are regulated in Australia. 1 What is a company? 2 What is a corporation? 3 How are companies regulated in Australia?
What is Julian's liability for the company?
What are the legal implications of the separate legal entity principle for Julian and the company?
What are the consequences of being a shareholder and director? Should Julian be the shareholder?
What is actually involved in creating the company?
What are the consequences for Julian and Retrofit arising from the choice of company type?
What type of company should Retrofit be?
Leroy is considering starting a catering business. Leroy has three children (aged 3, 16 and 21) and is married to Melanie. The proposed business will cater to high-end corporate clients and wealthy individuals. In order to have the ability to cater events for these clients, Leroy needs
Darryl and Julia are both passionate chess players. They meet for the first time at a chess tournament. After a short discussion about their love of chess, they decide they should open a chess store together selling exotic chess products to other likeminded chess fanatics. Unfortunately, neither
Jenna, Koda and Lula decide to start a business baking expensive wedding cakes. Jenna and Koda will each invest $10 000 in the business. While they don't want to participate in the day-to-day running of the business, they still want to have an active role in management. Lula has no money to invest,
Dr Abby is a medical practitioner who earns $150 000 per year on average. Her husband, Ben, is not employed in the paid workforce, but takes care of their three children, Charlie, Di and Elizabeth, all of whom are under 18 years of age and dependants of Abby and Ben. Abby seeks your advice on how
Twenty information technology specialist programmers get together to provide an open-source, non- profit quality online encyclopaedia which can be used as a reference tool, like Wikipedia, for the common good of members, who may be students or non-students. Pages in the encyclopaedia will be edited
Mei, Jun Kai, Alek, Ida and Caroline are the newly elected management committee members of a kindergarten for their children, which is structured as an unincorporated association. In their first management committee meeting, the director of the kindergarten advises that at the end of the previous
Alf is a recently retrenched corporate manager who decides to form a lawnmowing business in his local area to help him keep fit and earn a little income (no more than $30 000 per year). He already owns a large four-wheel drive car, and plans to buy a large trailer, two lawnmowers and whipper-
Describe business name registration requirements. 1 Under what circumstances does a business not need to register its business name? 2 How are business names regulated? 3 Under what circumstances might ASIC refuse to register a business name?
Explain how a hybrid business structure works and under what circumstances it is appropriate. 1 Provide an example of a hybrid legal structure, explaining its 'hybrid' nature.
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