Nicola and May are partners in a business which operates a second-hand bookshop. They have two...

Question

Nicola and May are partners in a business which operates a second-hand bookshop. They have two employees working for the business. The shop is located in leased premises. The business is doing well and has been profitable for them.

An opportunity has arisen to purchase two second-hand book shops in nearby suburbs. Nicola and May are keen to expand their business. They will need a large injection of funds to purchase the additional businesses. They will need to appoint a manager to at least one of the shops, as they will be fully occupied by the other two.

Nicola is concerned about her potential liability for the debts and liabilities of the partnership. Also, she is concerned about the future of the business if one of them should decide to leave, as the lease is in both of their names.

Advise Nicola on the advantages and disadvantages of incorporating. If you recommend incorporation, what form of incorporation would be the most appropriate? Why?

Question 2 (10 marks)

Although the doctrine of separate legal entity was affirmed in the leading case of Salomon v Salomon & Co Ltd[1897] AC 22, the court would lift the corporate veil in order to prevent a substantial injustice in some circumstances. Discuss. Your answer must refer to the relevant case law and Corporations Act 2001 (Cth).

Question 3 (10 marks)

The main business of Property Investment Pty Ltd is acquisition, development and selling of properties. There are three directors. At a meeting of the board of directors on 1 June 2012, a proposal was presented by David, a director of Property Investment Pty Ltd, for the purchase of a site adjoining a rubbish dump for $3 million from a vendor namely Seaview Pty Ltd. Seaview Pty Ltd acquired the site for $2 million on 1 June 2010. David is the sole shareholder and his wife and son are directors of Seaview Pty Ltd. David did not disclose his personal interests in the site and the proposal was finally approved at a meeting of the board of directors of Property Investment Pty Ltd on 10 July 2012

Advise David of any potential breach of directors’ duties to Property Investment Pty Ltd. Support your answer by reference to the relevant case law and Corporations Act 2001(Cth).

005_qfwe9pk-l1vmxte1.docx

Robert · Accepted Answer

Company Law
Running Head: COMPANY LAW                                                                                      1
PAGE  
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CORPORATE LAW
Company Law
Name 
Author
Company Law
Question 1: Advantages and Disadvantages of Incorporating
Resource Mobilisation
Incorporation refers to the process through which individual organisations change from independent to collective operation. This enables different persons to join and form a given company and operate under the same name. According to Chapter 2A Section 112 of the Corporations Act registration of companies leads to formation of a strong and independent legal person (Ciro & Symes, 2008, p.56). This includes a single company with different shareholders. Incorporation therefore allows for the provision of adequate resources needed for its management (Sutherland, 2011). Through incorporation, companies get sufficient capital for its activities thus enhancing expansion. Nicola would therefore be able to raise funds needed for the company without borrowing. Partnering with May would consequently help Nicole provide a pool of funds and resources required for the company’s expansion. Sufficient capital enables companies to prosper and capture other markets for its products and services. This would therefore allow Nicola to be able to manage and form part of a successful company.
Shared Losses 
Sharing of losses and liabilities is an essential factor in incorporation. Part 2B.2 Section 132 of Corporations Act clearly shows that losses incurred by the company can be distributed among the partners with respect to the shares contributed (Ciro & Symes, 2008, p.60). This enables the partners to experience less pinch of the losses as compared to bearing the entire losses. This is clearly evident by the fact that Shared losses help reduce the amount of burden carried by the company’s shareholders. Through limited liability of the Company’s act, Nicola would be able to share liabilities incurred by the company with the other shareholders (Sutherland, 2011). Nicola would also be able to distribute equally the losses incurred by the company thus lowering the stresses of management.
Through incorporation, companies are capable of operating even in the absence or withdrawal of a given partner. The life span of a given company is not established on the existence of a single individual.

Nicola and May are partners in a business which operates a second-hand bookshop. They have two employees working for the business. The shop is located in leased premises. The business is doing well...

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