Business Law: Common Business Structures, Tort Law, and Breach of Contractual Duties under ASIC

This article provides a comprehensive guide on Business Law covering topics such as common business structures, tort law, and breach of contractual duties under ASIC. It discusses the advantages and disadvantages of different business structures, types of business torts, and case law dealing with breach of contractual duties under ASIC. The article is useful for students studying Business Law and related courses.

Running head: BUSINESS LAW
Business law
Name of the Student
Name of the University
Author Note

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Answer 1
Advantages and disadvantages of common business structures
There are a varied range of varieties that are available in cases of the common business
models. A corporate entity makes use of these benefits which are not available in other
structures, like, a sole proprietorship or in cases of a general partnership (Hope 2015). The above
mentioned structures give benefits like a perpetual existence in areas of governance or board
governance. Along with the benefits, there are also instances where tax and other regulations
pose a threat to the incorporation of small business (Rothaermel 2015)
There different types of business structures along with their advantages and disadvantages are as
follows:
1. Close Corporations
The shareholders are responsible for the incorporation as well as the management of a close
corporation and the upper cap for the shareholders I set at thirty. The founders do not have the
power to raise equity and also there is a limitation to the transferring of stocks. In cases of close
corporation, there is less formality regarding the election of directors by the shareholders (Clark
2015). It is considered a legal entity and it also has the power to enter into contracts. A close
corporation can also sue the others who are parties (Hilling, Sandell and Vihelmsson 2017).
Advantages
a. The close corporation follows a structure of limited liability
b. Close corporations is less formal in nature.
c. It has a separate legal entity

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d. The existence of corporation is perpetual in nature.
Disadvantages
a. There is a limitation on the number of shareholders.
b. the shareholders do not have the power to raise capital.
c. There exists a restriction on transfer as well as sale.
d. The business structure is very complex in nature
e. The earnings of the corporation are subject to double taxation.
2. S Corporations
The Internal Revenue Code allows the provision of application of special tax and there is no
provision of double taxation. The same rules apply, like the rule of double taxation and the S
Corporation also exercise the rule of limited liability that exists in case of its shareholders. There
are some other limitations that apply to an S Corporation and these are additional limitations
(Young and Ghoshal 2016). The upper limit in case of an S corporation is one hundred and it
issues only one class of stock.

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Advantages
a. The process of single taxation applies
b. there is limited liability that is applied in case of S. Corporation.
c. The S. Corporation is a distinct entity
d. The nature of existence is unqualified and perpetual.
Disadvantages
a. The number of shareholders is limited to 100
b. The class of stock that is allowed is only of one type.
c. the process of incorporation of this company is very complex and is therefore very difficult to
create.
3. Limited liability Company
This is a comparatively new form of enterprise and it has the similar functioning of an S
corporation, but has few restrictions. Though it is created in the same process like a corporation,
with the filing of articles of organization, it exercises some restraint in creating it. The owners of
this type of corporation are termed as members and the entire management of the company lies
with the members. There is an agreement that governs the organization and in cases of absence
of such an agreement, there is a statute to that effect.
Advantages
a. The most pertinent advantage in case of this kind of structure is that it has limited liability.
b. There is a lot of flexibility in terms of management

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c. There is no system of dual taxation like in cases of C and S Corporation.
d. There is no upper cap on the number of members that can be part of the corporation.
e. The ownership is not vested with one person and there is no restriction of ownership to that
effect.
Disadvantages
a. The costs of legal and accounting are set at a very higher limit in comparison to that of a
proprietorship.
b. All the LLC filings have strict requirements and they must be filed within the state of domicile
of the corporation.
c. There needs to be strict emphasis on issues of tax and governance.

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Answer 2
Tort law and Business Operations
Tort law deals with loss arising out of any unfair behavior, suffering or an injury. The
main function of tort law is to compensate the victim and also act as a deterrence so that the
defendant does not follow the same unfair acts and are deterred from violating their rights in the
future (Stickley 2016). Business tort is the law that applies in cases of matters related to
business undertakings and corporations.
1. Contract and Tort law
Every company has a contract ion place that guides the members and gives them the
rights and duties. In cases of any infringement of those duties, the tort law can help in giving
compensation and also act as a measure to stop such unfair acts in the future. When a third party
causes any harm intentionally or makes a contracting party commit any wrong to ensure there is
a breach of contract, the tort law comes into play (Luntz et al 2017). In cases where there is a
breach of contract, the promised party does not receive the benefits and therefore suffers loss.
Therefore to proceed with breach of contract in business undertaking, it is essential to prove that
there was a contract in place and that the parties had their rights defined by the contract. The
important thing to prove is that due to the breach in contract, the parties have suffered damages
(Kraakman and Hansmann 2017).
2. Injurious Falsehood
This is done when a party intentionally makes a false statement to cause damage to
another party. This is considered a business tort as the damage is committed by a person to make
sure that there is a loss to the business reputation of a person and the false statements are with the

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intention of indicting a business. For a tort to succeed in cases of injurious falsehood, it is
important to prove that there was malice and also there is needs to be a proof that the person
made the false statements being fully aware that they are false (Allen and Kraakman 2016).
3. Negligent Misrepresentation
By mere definition of the term misrepresentation, it means any statement that is made
falsely to make any person enter into a contract. The false statements should have the power to
induce a person into entering into the contract. Negligent misrepresentation is lesser of an evil
because it was done negligently without the intention of inducing a person to sign a contract but
the person made that representation without any factual basis and without checking the veracity
of the statement he was making (Goldberg, Sebok and Zipursky 2016) 4. Fraudulent
Misrepresentation
Fraudulent misrepresentation is not similar to negligent misrepresentation but the
intention to defraud is an attached clause. In cases of fraudulent statements, the person has the
intention to deceive the person thereby gaining unfair advantage and economic gains. It is a very
serious offence and it carries penalties with it (Epstein and Sharkey 2016). The elements to prove
fraudulent misrepresentation is that the statements need to be intentional and it made with the
intention of inducing a party to believe in the terms of the contract. By relying on the material
facts, the person is harmed and therefore suffers injuries.

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5. Unfair Competition
It is a legal concept that is applied to business undertakings wherein an incorporation uses
unequal terms to compete with others and as a result of that another company receives
unfavorable conditions which turn out to be disadvantageous to them. A competition should be
continued in fair terms and when it is done unfairly, causing unfair competition and economic
loss, it is considered to be an unfair completion and attracts principles of tort law (Levine et al
2016).
6. Conspiracy
This is a ploy that is played by some undertakings to enter into an agreement to ensure
that a third party does not get the rights and it is done with an objective of obtaining illegal
means. The agreement that is entered into between the parties is voluntary in nature. The
agreement is entered into by two or more persons with the over intention of hatching a
conspiracy in furtherance of their common goal (Weaver and Kysar 2018).
Answer 3
Case Law dealing with breach of contractual duties under the Australian Securities and
Investment Commission.
Section 180(1) of the Australian Securities and Corporation Act, 2001 deals with the
nature of duties that is owed by a director to its company. The directors in a company need to
apply care and diligence and in the case of Australian Securities and Investment Commission v
Cassimatis (No. 8) [2016] FCA 1023, it was held by the Coirts that the directors are obligated to
act in good faith and are needed to exercise proper care and diligence in executing their

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functions. In this case, the directors had breached their duties as a director and they had not
performed their duties as per the provisions of the Australian Securities and Corporation Act.
In the above mentioned case. Storm Financial Limited, also called Storm is an Australian
financial corporation. The function of the company was to borrow against equity and thereby
obtaining a margin loan, thereby establishing a cash reserve. A case was initiated against the
company by the Australian Securities and Corporation Act for the breaches of the directors under
section 180(1) of the Act. The Australian Securities and Corporation Act had alleged that the
directors had breached their duties and the directors had worked in accordance with the wishes of
the shareholders. The breaches were done by the directors when the company was solvent and
therefor the case had unique features. The provisions of the Australian Securities and
Corporation Act states that there needs to sound and strong reasons behind providing financial
services. When the financial services are provided to vulnerable investors, it was a clear breach
of the terms of the Australian Securities and Corporation Act (Knap, Crustal and Prince 2016).
The allegations that were raised under the section 180(1) of the Australian Securities and
Corporation Act were as follows:
1. the model that was created by the company was not in accordance with the terms of the
Australian Securities and Corporation Act. The provision of allowing advice to investors was a
clear contravention of the Act.
2. The financial advice that was permitted by Strom was illegal.
The reasons that were cited by the Australian Securities and Corporation Act were fair and
reasonable and as a result, the company faced risk and also a cancellation of AFSL. The
investors gave a banning order. The point to be considered in this case was whether there was a

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legitimate contravention of the section 180(1). The question was regarding the intention of the
directors and whether they had exercised reasonable care and diligence in discharging their
powers (Allen and Kraakman 2017). The magnitude of the act was assessed by the Act and it
was found by the Court that they had breached the provisions of the Corporations Act. The Court
opined that the breaches were reasonable foreseeable. Though the directors had acted with reason
and responsibility but it was still held that there was a contravention of section 1317S of the
Australian Securities and Corporation Act (Ramsay 2015).
From the case study, it has become highly clear that the ASIC wants to pursue cases
related to breach of directors. In cases when the behavior of the director negatively impacts the
clients of the corporation, the ASIC takes responsible steps to ensure that there are no
contraventions of the same. The model for strategizing the investment should not be in
contravention to the principles of the Australian Securities and Corporation Act. The Australian
Securities and Corporation Act has also given a leeway regarding the number of times the breach
can be permitted and it is set at a single breach of duty which is permissible.

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References
Allen, W.T. and Kraakman, R., 2017. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business.
Allen, W.T. and Kraakman, R., 2016. Commentaries and cases on the law of business
organization. Wolters Kluwer law & business.
Clark, J.J.G., 2015. Close corporations as qualified companies under the Group Areas Act: an
examination of aspects of the Group Areas Act 36 of 1966 and the Close Corporation Act 69 of
1984 (Doctoral dissertation).
Epstein, R.A. and Sharkey, C.M., 2016. Cases and materials on torts. Wolters Kluwer Law &
Business.
Goldberg, J.C., Sebok, A.J. and Zipursky, B.C., 2016. Tort Law: Responsibilities and Redress.
Wolters Kluwer law & business.
Hilling, A., Sandell, N. and Vilhelmsson, A., 2017. Tax Planning in Partner-owned Close
Corporations. Nordic Tax Journal, 1(1), pp.108-120.
Hope, J., 2015. Consider structure, advantages of competency‐based programs. Dean and
Provost, 16(7), pp.1-5.
Knapp, C.L., Crystal, N.M. and Prince, H.G., 2016. Problems in Contract Law: cases and
materials. Wolters Kluwer Law & Business.
Kraakman, R. and Hansmann, H., 2017. The end of history for corporate law. In Corporate
Governance (pp. 49-78). Gower.

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Levine, L.C., Vetri, D., Vogel, J. and Gassama, I.J., 2016. Tort law and practice. Carolina
Academic Press.
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Rothaermel, F.T., 2015. Strategic management. McGraw-Hill Education.
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Climate Disaster Law. Edward Elgar Publishing.
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