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LAW OF BUSINESS ORGANISATIONS: LAWS641 Semester One 2018 ASSIGNMENT: Total marks for this assignment = 100% Worth 60% of the overall mark for this paper Instructions 1. Case citations, statutory and...

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Semester One 2018
Total marks for this assignment = 100%
Worth 60% of the overall mark for this pape
1. Case citations, statutory and other references must follow the New Zealand Law Style Guide (Second Edition). This is available under the AUT Li
ary subject tab for Law.
2. The assignment consists of FOUR QUESTIONS, with potential marks totalling 100%, which must all be answered. There are two problem questions and two long paragraph questions. The word limit is 2,000 words. Please note that this is a limit not a target.
QUESTION ONE                                [25 MARKS]
Michael, Leonora and Ge
y are friends who fly model aeroplanes in the weekends at a model aeroplane club. Michael has good technical skills and can assemble and repair the model aeroplanes. Leonora is an accountant and has good business skills. Ge
y is a happy person who makes friends easily and is good at persuading people to do the kind of things she likes doing. Michael has been assembling and repairing model aeroplanes for other club members in his garage at home. He has to buy spare parts for the repairs and he resells the parts to the club members when the repair is complete. Leonora starts helping him to keep control of the payment of the expenses and the collection of the money. Being an accountant, Leonora persuades Michael to start charging for his time and trouble, and to add some more to his charges so Leonora can get paid for the accounting work.
y hears about this and starts
inging along people from her wide circle of friends to be introduced to model aeroplane flying and to get Michael to assemble their planes for them and to keep them in good repair. Ge
y also wants to be paid so that she can buy better aeroplanes for herself and her twin sons. They decide that the easiest way is to increase the fees that Michael is charging and for the three of them to share what is left over after paying for the costs of the parts and a small rental to Michael for the use of the garage. Leonora has discovered a good source of new model aeroplanes in Korea and starts importing them to resell through Michael’s garage workshop, sharing the markup with the others.
Michael repaired a model aeroplane but when its owner flew it, immediately after getting it back from Michael, it malfunctioned and crashed. The model plane fell into a nea
y business premises and damaged some very expensive equipment, belonging to Geek Ltd. Geek Ltd are suing for $300,000 compensation.
If the court action is successful, who would be liable?
QUESTION TWO                                [30 MARKS]
The concept of separate legal personality is fundamental to company law.
With close reference to leading cases, explain this concept and its relationship to the doctrine of limited liability. In your answer explain and analyse some of the critiques of this doctrine eg issues of moral hazard and the costs to society.
QUESTION THREE                                [25 MARKS]
To preserve commercial certainty, the Courts have been very reluctant to “raise the corporate veil” to impose liability on individual shareholders or directors.
Explain what is meant by the metaphor of “raising the corporate veil” with close reference to at least two cases in which the court has been required to consider this issue.
QUESTION FOUR                                [20 MARKS]
Alina and Pete are the directors and shareholders of Cool Reads Ltd, which ca
ies on business as a book retailer. The company is just
eaking even financially. They meet Boris, a well-known media figure, who has just published his first novel. Boris persuades them to have the company purchase 100,000 copies of the novel. The copies are purchased using the company’s credit facility at GNZ Bank. The book is poorly reviewed in a national newspaper and does not sell. The lessor of the company’s shop contacts Alina and Pete because rental has not been paid on time. The company’s main supplier of books has also not been paid and Pete and Alina are expecting a call any day about that unpaid account. Alina and Pete have been drawing small salaries as directors, but have not received any dividends. They wish to declare a dividend now.
Advise Alina and Pete on whether they, as the board of directors of Cool Reads Ltd, will be able to satisfy the requirements to properly declare a dividend.
Answered Same Day Mar 06, 2020 LAWS641


Sarah answered on Mar 09 2020
133 Votes
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Question 1
In this case, it is the court who can decide which friends would be liable for the compensation that is Michael or Leonora or Ge
They are not bound by the 1908 Partnership Act because the partnership is a legal entity and defines the relationship between partners and binds people operating the business together with the notion of sharing profit. Sharing gross profit will not account for partnership (Ba
ett & McDermott, 2014). In the given case, profits are used to pay for the services rendered by the person which does not make them a partner. Similarly, a partnership firm is liable for the wrongful acts that are performed during the normal course of business and all partners are jointly liable for the partnership firm’s liabilities.
It would be appropriate to take the case of Polkinghorne v Holland where it was ruled out that if the partnership firm is found of involving in the wrongful act, then all the partners are held for same liability (Jade, n.d.).
As per Section 5(b) of Partnership Act, the net profit should be shared by all the partners who are present in this case that is sharing of net profit equally by all the three friends. But considering the Partnership Act Section 4(1) it was clear that Michael and Ge
y were mainly contributing to the airplane repairing business (New Zealand Legislation, n.d.). In this case, Leonora was being paid only for the accounting tasks performed by this partner.
From the analysis of the case scenario Partnership Section 5(c)(ii) Leonora will not be qualified to become the partner initially (New Zealand Legislation, n.d.). Leonora intended to resell Korean planes through the Michael business which is not related to the repairing which qualified Leonora to become a partner. It leads to the formation of the new partner. Leonora is qualified to become a partner when he began to participate actively in the business, and it meets the Partnership Section 4(1) (New Zealand Legislation, n.d.).
In this case, the cu
ent business situation meets the normal business operations that are repairing and selling the airplanes. The main issue is that Michael repaired the airplane that damaged the equipment claimed by the Geek Corporation. From the Partnership Section 13, it is clear that the damage suffered by Geek Corporation is held liable by the Partnership Act. The main reason for the firm to be liable because it was caused by the repair done by Michael and them these things took place under the normal business condition (Ba
ett & McDermott, 2014). As per the partnership act if any damage is caused by the partnership firm in the normal due course of business, then the firm will be held liable for the damage.
From the analysis, it is clear that all three partners Michael, Leonora, and Ge
y are meeting all the requirements of the Partnership Act of 1908 and they are bound by all the legal attributes of the partnership (New Zealand Legislation, n.d.). Therefore, the final verdict would hold all the three partners Michael, Leonora, and Ge
y liable for the compensation of $300,000. As per Partnership Act, Section 15 the entire partnership firm and all the partners will be held liable, and it is in line with the case of Polkinghorne v Holland (Ba
ett & McDermott, 2014).
Question 2
As per the company act, the corporation is a separate entity and different from the individual owners of the company and they are given all the rights to sue and be sued and to be held liable according to Companies Act 1993 section 15 (New Zealand Legislation, n.d.). As per the Section 97(1) stated that unless there is specifically stated that they are not having unlimited liability the shareholders of the company will have limited liability.
In this case, the case law of Salomon v Salomon & Co Ltd will be more relevant. It is chosen from the Great Britain case because it is used to indicate that corporation is a separate entity. Salomon v Salomon & Co Ltd [1897] A.C. 22 (House of Lords) indicates that Salomon Corporation is separate from the Salomon (Law Teacher, n.d.).
As per the New Zealand corporation Lee v Lee’s Air Farming Limited [1961] NZLR 325 where the law ruled out that Lee Air Farming Limited is separate from Lee (ATO, n.d.).
After the incorporation of the company, both company and the owners are separate from each other as per the Companies Act under Section 15...

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