Business and Corporation Law Assignment

This assignment covers the topics of pre-registration and post-registration contracts, agency law, partnership law, and the Corporations Act 2001 (Cth). It includes two questions and their respective answers.

Running Head: BUSINESS LAW ASSIGNMENT 0
Business and Corporation law
Student’s Name
Law 504

Law- 504 Corporation and Business law 1
Contents
Question 1...................................................................................................................................................2
Issue 2
Law 2
Application 3
Conclusion 4
Question 2...................................................................................................................................................4
Issue 4
Law 4
Application 5
Conclusion 6
References...................................................................................................................................................7

Law- 504 Corporation and Business law 2
Question 1
Issue
Whether both the companies named Volvo Trucks (Australia) Ltd and Thor Mining
Machinery Ltd can be held the Steve Jones liable for breach of contract? Further, can Steve’s
personal assets be sued by both these companies for the said breach of contract.
Law
A company is a separate legal entity (Dignam & Hicks, 2011). The same can do the
transaction with it is own name along with entering into business contracts with outsiders.
Although this is necessary to mention that a company gets this separate personality once, the
same becomes registered (Grin, 2018). Before registration, like any other business structure, a
company also depends on the people who form the same. The people who exercise all the efforts
to form a company are known as promoters of the company (Miller & Hollowell, 2016). Before
registration, promoters act on behalf of the “to be formed” company. In such a scenario, they
also enter into some of the contracts. These contracts are termed as preformation or pre-
registration contracts of the company (Bottomley, Hall, Spender, & Nosworthy, 2017). Now the
issue is that whether a company can be held responsible for such contracts. The law of agency is
another aspect to study here. In general, the promoters, officers, and directors of the company act
as an agent of the company, but this agency law cannot be applicable in the cases of pre-
registration contract. The reason behind such non-applicability is that before registration, the
principal i.e. company does not exist and therefore no agency relationship exists with these
persons before the formation of the company.
In the due course of answering this issue, this is to be stated that certain provisions are
prescribed under Corporations Act 2001 (Cth) to decide that whether a company will be held
responsible for the pre-registration contracts developed by the promoters or not.
Section 131 is an important section in this sector. The subsection 1 of this section says
that a company after formation can ratify the contracts made by it is promoters before formation
i.e. the pre-registration contracts within a specified time (Austrlian Government, 2018). If no
time is specified then the company can do such ratification within a reasonable time phrase. If

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the company does not do so within the specified time, then the company will not be bind with
any of the term of such contract. Further sub-section 2 of this section says that if the company
does not ratify or adopt such pre-registration contracts made by promoters on behalf of the
company then the promoters will be held personally liable towards the third party (Austlii, 2018).
However, the company will be the only responsible person in respect of post-registration
contracts that the same enters with it is own name after getting a separate legal identity.
Application
The given case is related to both pre-registration and post-registration contract. In the
given case company named WA Gold Exploration Ltd (in which Steve Jones was a promoter)
has received the registration certificate as on 10 July. On 6th July, Steve has entered into a
contract with another company named Thor Mining Machinery Ltd to buy a drill machine of the
value $ 125 000. It was a pre-registration contract in this case, in which Steve has entered on
behalf of WA Gold Exploration Ltd (hereinafter mentioned as the company). Later on after
incorporation, the company has established an advisory committee and the same have suggested
to the board of directors that they should buy the drill machine from United Mining Machinery
Ltd. This company was ready to sell the machine for $ 100000. Board of the company has
accepted the recommendations and informed to Thor Mining Machinery Ltd that the company
will not buy this machine as agreed by Steve. The company has not ratified or accepted this pre-
registration contract. Applying the provisions of section 131 (2) of the Corporations Act, 2001,
Steve seems to be personally liable for such cancellation of the contract.
On the other side, as on 14th July, the board of directors of the company has entered into
a contract with Volvo Trucks (Australia) Ltd to purchase 5 ore trucks. These trucks were costing
$ 500000 and were expected to be delivered on the 30th day of September. This was a post-
registration contract as on the date of this contract, the company was in the existence. The
company has developed this contract with it is own name and legal capacity. Later on in the
middle of the September month, the cause of some fluctuation in prices of gold deposits,
company’s assets reduced to the level of $ 400 000 and therefore it was not possible for the
company to pay for the trucks. Due to such inability, the company has cancelled the contract
made with Volvo Trucks (Australia) Ltd. Being a post-registration contract, without any doubt

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or confusion, the company i.e. WA Gold Exploration Ltd will held liable for the breach of
contract. Steve cannot be even involved in this case because he is a promoter and has developed
only a single contract on behalf of the company that is with Thor Mining Machinery Ltd.
Conclusion
To advice the Steve, this is to say that Thor Mining Machinery Ltd is personally liable for
breach of contract and therefore this company can sue his personal assets. The reason behind
such personal liability is that it was a pre-registration contract, to which the company has not
ratified. Further, Volvo Trucks (Australia) Ltd cannot sue Steve for breach of contracts, as this
company has entered into a contract with WA Gold Exploration Ltd and not with the Steve.
After incorporation, the company became a separate legal entity and therefore can do the
transaction with it is own name. In such case, personal assets of Steve are safe.
Question 2
Issue
To check the legality of two transactions done by one of the partners of the firm named
Simon. On is the purchase of hard drive worth $15000 and another one is the purchase of a ute
which consists of cost $ 9000.
Law
The partnership is a business form in which some rights and duties are decided by
partners (Sweet & Schneier, 2008). A partner of a firm decides these duties and rights mutually
and all of them are required to act accordingly. A partner act similar to an agent of a partnership
firm as well as of other partners (Miller, 2016). Third parties, who do a transaction with firm,
actually do the same with partners of the firm because unlike a company a partnership firm is not
a separate legal entity. Apart from general discussion, every state of Australia has legislation on
Partnership (Business.gov, 2018). In the New South Wales state of this nation, Partnership Act
1892 No 12 (NSW) (hereinafter referred as an act) provides the rule that governs partnership in
the state.

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Section 24 (2) of the act says that partners do have the right to get the expenses
reimbursed which they do in the ordinary and regular course of business (New South Wales
Government, 2018a). Partnership agreement declares the right and responsibilities of the partners
and works like a charter of the firm. Partners cannot challenge to partnership agreement until
unless the same carries some invalid or illegal provisions. Here the role of agency relationship
comes into light. For the outsiders and third parties, partners are agents of the partnership firm.
Under the Partnership agreement, takes decisions about the express authority of each partner
(Mann & Roberst, 2012). All the partners are liable for an act of a partner, which he/she do
within the limit of prescribed express authority. A partner is not advised to do any act outside of
the provide authority as in such a situation he/she becomes personally liable for the act (Jade,
2018). Partners have the capacity to bind the firm and other partners in respect of those acts that
they do according to given authority.
Section 5(1) of the act states that in the absence of express authority, there will be an
implied authority and it will be assumed that a partner is acting on behalf of the firm and cause
of this the firm and other partners will be held responsible for the act of a partner (New South
Wales Government, 2018b). Section 5(1) further provides that a third party cannot know about
the mutual authorities of partners, hence if a partner acts outside of express authority, then also
the third party can sue to other partners and firm for the deed of partner. However, this is
necessary to inform that for such sue, the act of partner must be related to the ordinary nature of
business of a partnership firm. It means if a partner does a transaction with a third party which is
not related to the ordinary business of the firm, then the third party cannot make the firm or other
partners held liable. The reason behind this is, in such circumstances, the third party has reason
to believe that a partner is not acting according to the authority granted.
Application
In the given case, four partners are there which carries a firm with the name Computer
Solutions. The firm is involved in the business of providing data storage-related service to it is
clients. Partners of the firm have decided about mutual authority. They have decided that every
one of them is authorized to do the transactions on behalf of the firm. In addition to this, they
also become agrees on the point that none of them is authorized to do a transaction which

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involves money more than $ 10000. Later on, one of the partners named Simon has done two of
the transactions.
Firstly, he has purchased a hard drive of 50TB from Sunstar Computer Hardware Ltd.
The cost of this hard drive was $ 15000. As the partners have decided that, no partner has
authority to enter into any transaction worth more than $ 10000 individually, Simon has acted
outside of the expressed authority here. However, applying the provisions of section 5(1) of the
act, the third party i.e. Sunstar Computer Hardware Ltd could not be aware of the internal
authorities of the partners. Agreeing with the fact that Simon has acted outside of prescribed
authority, yet he has purchased a hard drive, which was related to the ordinary business of the
firm. This is the reason that third party, in this case, can make the firm and other partners held
liable for such sale of the hard drive as the same had no reason to believe that Simon cannot
enters into a transaction more than the value of $ 10000.
Further, in the second transaction, although the value involved is only $ 9000 but the
subject matter is not related to the ordinary course of business. Simon has purchased a ute
(second hand) for the firm from You Beaut Ute Ltd. The reason behind such purchases was an
idea of Simon that the firm should enter into the business of freight. Other partners have already
rejected this idea, yet Simon has purchased the ute for the firm. Regardless of the value of ute,
Simon has acted outside of expressed and implied authority. Again, according to the provisions
of subsection 1 of section 5, the third party must be aware of the ordinary business of the firm
and must know that purchasing of the ute is not related to objectives of the firm. In this
transaction, the seller of second-hand ute i.e. You Beaut Ute Ltd neither can sue to firm nor to
other partners. This transaction is of nature as Simon has done the same in a personal capacity;
therefore, he will be personally liable for this transaction.
Conclusion
To provide a conclusion and advise to rest three of the partners of the firm, this is to be
stated that for the purchasing transaction of the hard drive, the firm and other partners will be
held liable as Simon has acted outside of expressed authority but within the limit of implied
authority. Secondly, Simon will be personally liable for the purchase transaction of the ute as this

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act was outside of the limit of expressed as well as implied authority and was not related to the
ordinary business of the firm.
References
Austlii. (2018). CORPORATIONS ACT 2001 - SECT 131. Retrieved from:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s131.html
Austrlian Government. (2018). Corporations Act 2001. Retrieved from:
https://www.legislation.gov.au/Details/C2018C00275
Bottomley, S., Hall, K., Spender, P., & Nosworthy, B. (2017). Contemporary Australian
Corporate Law. United Kingdom :: Cambridge University Press. P. 158.
Business.gov. (2018). Partnership. Retrieved from:
https://www.business.gov.au/planning/business-structures-and-types/business-
structures/partnership
Corporations Act 2001 (Cth)
Dignam, A., J., & Hicks, A. (2011). Hicks & Goo's Cases and Materials on Company Law (7th
ed.) United States: Oxford University Press.
Grin. (2018). Company Law. Significance of corporate personality and the meaning of 'lifting
the veil of incorporation'. Retrieved from: https://www.grin.com/document/202061
Jade. (2018). Partnership Act 1892 (NSW). Retrieved from:
https://jade.io/article/276604/section/192
Mann, R., A. & Roberst, B., S. (2012). Essentials of Business Law and the Legal Environment
(11th ed.). Mason, OH: South-Western Cengage Learning.
Miller, R., L. (2016). Business Law: Text & Cases - Commercial Law for Accountants (14th ed.).
USA: Cengage Learning.
Miller, R., L., & Hollowell, W., E. (2016). Cengage Advantage Books: Business Law: Text and
Exercises (6th ed.) Ohio: Cengage Learning.

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New South Wales Government. (2018a). Partnership Act 1892 No 12. Retrieved from:
https://www.legislation.nsw.gov.au/#/view/act/1892/12/historical2004-04-05/full
New South Wales Government. (2018b). Partnership Act 1892 No 12. Retrieved from:
https://www.legislation.nsw.gov.au/#/view/act/1892/12/historical2004-04-05/part2/div2/
sec5
Partnership Act 1892 No 12 (NSW)
Sweet, J., & Schneier, M., M. (2008). Legal Aspects of Architecture, Engineering & the
Construction Process (8th ed.) USA: Cengage Learning.