Corporation Law Assignment: Case Study Analysis On Business Laws & Legislations
Question
Task:
Purpose:
The purpose of the corporation law assignment is to provide students with an opportunity to demonstrate their level of learning of the various key concepts taught in the unit and apply them in analysing and answering two case problems by citing the relevant legal rules and cases and applying these to the facts of the case.
Question 1
Cousins Lilly Henty and Samuel Curley desire to launch a business. They have always worked as employees and have never opened much less run any sort of business enterprise in their lives. They want to run a business proposed business by as simply as possible by themselves. In addition, after their business is set up, they do not want the public to easily find out what kind of business they are running. Even though they do not have business experience, they are both proactive people and are committed to make their business a success. In the future, they anticipate that they will want to expand the business and so would need additional capital from outside sources to achieve this.
What type or types of business structure would suit them best Explain your answer.
Question 2
Kubo Yutaka is an executive director of Intoku Logistics Pty Ltd, an established company founded in Sydney in 1975. The company has 4 members/shareholders (including Yutaka), with each of them owning twenty-five percent of the company shares. According to Intoku’s constitution, all loan contract, to be valid, must bear the signature of at least two directors.
Yutaka wants to retire in 2021. As he has been with the company since its inception, he believes he is now entitled to a reward for all his years of faithful service. He visits a yacht dealership in Coffs Harbour and orders a boat worth $200,000. Yutaka signs the contract as a director of Intoku Pty Ltd. When the boat is delivered and the dealer sends the invoice to Intoku, the board of directors are livid with anger and refuse to pay for the boat. They also want to take legal action against Yutaka. The boat dealer threatens to sue Intoku is the boat is not paid for.
Answer the following questions:
(a) Did Yutaka have authority to sign the contract to buy the boat
(b) Is Intoku Pty Ltd legally obliged to pay for the boat
Answer
Question number 1
Suitable business structure for the cousins Samuel Curley and Lilly Henty
Type of business in Australia discussed within the corporation law assignment
There are four different types of business structure that have been followed in Australia. For example, sole trader, a company, partnership and trust. The sole trader is a type of business which is run by an individual (Shirodkar, Hunter and Foley, 2018, p12 (3)). Only a person can start the business as a sole trader.
The business by opening a company can lead to huge expenditures due to the administration cost and reporting requirements. That is the reason it requires a lot of capital. Opening a business through trust is also expensive and quite similar to the company business. In the partnership business, more than one person can be associated with a business and they can share the profit and loss among themselves (Klatt, Angelico and Polesel, 2018, p1 (1)). If a person wants to set up a business with their family and friends then they will definitely be able to set up their business but it is comparatively inexpensive when it comes to the other business structure.
Suitable business for Samuel and Lilly
After going through all the business structure, it can be stated that the partnership business can be suitable for them as this type of business generally opens with the family or friend. In this backdrop, the cousins Samuel Curley and Lily Henty can start their business in a partnership because this type of business is considered by the persons who are interested to start their business with family and friends. That is the reason they can start their business in partnership. It is already mentioned in the case study that they have no insight when it comes to establishing the business. On the eye of this specific reason, they should not invest more capital in this business so that they could incur massive liability in case the business fails. They can start their business in partnership. Another important aspect of the partnership business is that the partners can set up their business with the compliance of the Australian taxation office which also requires the low cost. The company need not register their name under Australian Securities and Investment Commission (ASIC). In this particular case, Samuel and Lily can operate their business with their name. The other benefit of the partnership business is that the total revenue can be splitted between the partners who are associated with the business (Asic.gov.au, 2021). The company can also increase their capital by considering the association of the other partners in that business. The partnership company has limited liability which is most convenient for Samuel and Lily’s company as they are going to start their business with a limited budget (Wales et al, 2021, p64 (3)). Moreover, the company can borrow the loan by showing their partnership agreement to the finance company that will provide the loan. There are multiple ways to take a loan for a partnership business in Australia. It can be suggested that Samuel and Lilly can apply for the loan through a mortgage broker who will assist the partners of the business so that they can buy the business resources. The mortgage broker already has a good relationship with the major commercial banks along with the authorized lenders and this will help the partners to negotiate for a suitable amount of loan to the value ratios (LVR). It will be beneficial to reduce the interest rate.
Question number 2
a) The validation of authority of Yutaka for signing the contract for purchasing the boat
According to the Corporation Act of Australia, the directors must be concerned with the duty of loyalty and duty of care (Legislation.gov.au, 2021). In this particular scenario, Kubo Yutaka who is an executive director of Intoku Logistics Pty Ltd should maintain the best possible interest for that particular company. As per the protocols of this particular law, the directors are bound to disclose the details of the transaction to the other shareholders and stakeholders of the company. In this particular case, the director of this company Kubo has invested in the company for buying the boat so that his personal interest could be accomplished. The director has made the dealership with the other company for buying the boat and in that particular case the other stakeholders of the company were completely unknown about this fact. This creates anxiety among the other members of the company. When a director utilizes the investor's fund of their company to fulfill the personal interest then it is called the director's fraud. It is also deemed to be an inappropriate use of the funds or the director's theft.
If there is a comparison of a case law with this particular situation then the case of “Australian Securities and Investment Commission (ASIC) v Cassimatis (No. 8),” then it can be concluded that Kubo Yutaka should be prosecuted to the court for dealing the inappropriate investment for the personal use (Langford, 2020, p2 (4)). In this particular case law, Cassimatis, the director of the company Storm Financial Limited has failed on the cases of investment. In addition to that, Kubo has also failed to maintain the duty of care and duty of loyalty that is the reason the court held that the director, in this case, is definitely obliged with the misuse of the investment. Therefore, it can be stated that Kubo is obliged to deal with all the investment which has been lost. Finally, it also can be stated that the director, in this case, is not eligible to use the contract for their personal use.
b) Analysis of whether the company is bound to pay the cost of the boat
This particular case study has clearly mentioned that the director has made the dealership with the company for purchasing the boat. Another point that has to be considered in this regard is that the personal purchase of a director also depends on the business structure. As a sole trader, the director can purchase their personal thing but in this particular case, the company Intoku Logistics is not compatible or enforced under the sole business leader as there are four members who are also associated with this particular company. In this particular case, it can be stated that the company is not liable to invest the money of investors so that they can fulfil the personal interest of the director. Therefore, the company Intoku Logistics is not bound to pay in this regard.
Reference List
Asic.gov.au, 2021. ASIC Home | ASIC - Australian Se2curities and Investments Commission. [online] Available at:
latt, G., Angelico, T. and Polesel, J., 2018. Emerging partnership practices in VET provision in the senior years of schooling in Australia. Corporation law assignmentThe Australian Educational Researcher, 45(2), pp.217-236. https://minerva-access.unimelb.edu.au/bitstream/handle/11343/283097/13384_2017_244_ReferencePDF.pdfsequence=1&isAllowed=y
Langford, R., 2020. Cassimatis v Australian Securities and Investments Commission [2020] FCAFC 52-" Dystopian Accessorial Liability" or the End of" Stepping Stones" as We Know It.https://minerva-access.unimelb.edu.au/bitstream/handle/11343/240282/Cassimatis%20SSRN-%20The%20End%20of%20Stepping%20Stones%20As%20We%20Know%20It_.pdf sequence=1&isAllowed=y
Legislation.gov.au, 2021. Corporations Act 2001. [online] Available at:
Shirodkar, S., Hunter, B. and Foley, D., 2018. Ongoing growth in the number of Indigenous Australians in business. https://openresearch-repository.anu.edu.au/bitstream/1885/148675/1/CAEPR-WP-GROWTH-PUBLISH.pdf
Wales, C.R., Lababedi, J.A., Coles, A., Lee, P. and Clarke, E., 2021. Consumer representative experiences of partnership with health workers in Australia. Patient Experience Journal, 8(3), pp.64-78. https://pxjournal.org/cgi/viewcontent.cgi article=1523&context=journal
