Recommendation for Business Structure

The assignment requires recommending a suitable business structure for a company based on its needs and characteristics. The options include a proprietary company, a limited liability partnership (LLP), or a public company. Each option has its advantages and disadvantages, which are discussed in detail. The recommendation is to choose a public company due to its ability to raise funds, compliance with strict legal regulations, and protection against fraud. However, this comes with additional costs and compliance burdens.

Running head: BUSINESS LAWS
Business Laws
Name of the student
Name of the university
Author note

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Table of Contents
Question 1..........................................................................................................................2
Question 2..........................................................................................................................5
Answer 3..........................................................................................................................10
Bibliography.....................................................................................................................14

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Question 1
Issue
 Whether a valid contract has been formed between Terry and Susan
 Weather Terry has committed negligence in relation to Kevin
Rule 1
A contract is a legal agreement which is formed if all elements required to
establish it are identified within the discussions of the parties. In relation to the issue the
elements which are to be identified in the discussion between the parties is that of an
offer and acceptance. Specifically the issue which needs to be addressed is that when
an offer is revoked and is no longer eligible to be accepted and when an acceptance is
deemed to have been made through post.
One of the most Landmark case in the history of contract law is that of Adams v
Lindsell1. The issue before the court in this case was to decide when an acceptance by
post is deemed to be made. In this case the court set out a Precedent that as soon as
the letter of acceptance has been posted the party posting the letter is said to have
made the acceptance. However the rule is only applicable when the parties to the
contract do not expressly rule out post as a medium of acceptance. In addition the letter
of acceptance has to be correctly addressed for the rule to be made applicable.
In the famous case of Byrne & Co v Leon Van Tien Hoven & Co2 it had been held by
the court that the postal rule of acceptance is not applicable when it comes to the
revocation of the offer. This signifies that only when the letter of revocation has actually
been received by the offer is still available to be accepted. In this case the plaintiff hand
accepted the offer through post before the letter of revocation actually reached him. The
revocation letter had been sent by the defendant prior to the letter of acceptance being
posted. The Court ruled in favour of the plaintiff stating that revocation is not subjected
to the provisions of the postal rule.
1 Adams v Lindsell (1818) 1 B & Ald 681
2 Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344

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Application
It has been provided through the scenario that Susan had made an offer to Terry
to sell 100 gold bars at a price of $450,000. The offer had been sent by Susan to Terry
on 27th January. The letter was actually received by 3rd February and on the same day
Terry posted acceptance in relation to the letter. However the offer made by Susan had
been attempted to be revoked by post sent by her on 30th January. According to the
principles of the Byrne case this revocation would only come to effect when it has
actually been received by Terry and if Terry accepts the offer made by Susan before he
receives the revocation letter it would account to a valid acceptance.
However the revocation letter had been received by Terry on 4th February the
acceptance had already been made by him on 3rd February. This can be said through
the application of the principles stated by the postal rule that acceptance is made if the
parties agree to communicate through post as soon as the letter is posted. Therefore as
the acceptance had been made before the revocation of the offer, a valid contract has
been formed between Terry and Susan which is enforceable in court.
Conclusion
There is a valid contract which has been formed between Susan and Terry on 3rd
February when the letter of acceptance was posted.
Rule 2
Negligence is defined as the failure on part of one party to comply with their
duties towards others which results in reasonably foreseeable damages to others. The
case of Donoghue v Stevenson3 introduced the elements of negligence to the legal
system of England which was then adopted by various countries including Australia.
The three elements which had been identified by the court in this case include the
element of duty of care, breach of the duty of care and damages caused due to the
breach.
3 Donoghue v Stevenson (1932) AC 562

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It was stated in the case of Anns v Merton London Borough Council4 that a
person may have a duty of care towards another person if his actions may foreseeably
harm or damage the other person. The harm is not required to be only in relation to
physical injury but also it can be towards financial or mental injury. Further it has been
stated in Vaughan v Menlove5, that where the question is whether the duty has been
observed or not it is analysed objectively. The reasonable person test or the objective
test is applied. However in the case of Hedley Byrne & Co v Heller6 it was ruled by the
court that where the defendant of a negligent claim is a professional is action is to be
analysed in the light of another reasonable professional not a normal person.
The “but for” test is put to use to analyse whether the injury is only the result of
the breach as per Barnett v Chelsea & Kensington Hospital7. In addition the person
is able to defend the negligent came through a special defence called contributory
negligence. The defence is applied to analyse whether the injured party acted
reasonably in the situation with the same standard as for analyzing negligence as per
Railways v Halley8.
Application
Terry had met Kevin in a pub. Kevin had asked Terry to provide him advice in
relation to investment as Terry is an investment expert. In the given situation Terry had
just agreed with Kevin that investment in Ziro is a sound idea. However the company
was subjected to scandal and Kevin lost his investment. Terry owed duty of care to
Kevin as his advice had the potential of causing financial injury to him. The duty was
breached as he did not act as a reasonable professional and provided him an advice
without any evidence. If the advice would not have been provided by Terry, Kevin would
not have suffered the losses. Therefore Terry is liable for negligence. However Kevin
had the knowledge that as he has metTerry in a pub he is not in normal condition and is
intoxicated. Any reasonable person would not rely on an advice provided by an
4 Anns v Merton London Borough Council [1978] AC 728
5 Vaughan v Menlove (1837) 3 Bing. N.C. 467
6 Hedley Byrne & Co v Heller [1963] 3 WLR 101
7 Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
8 Railways v Halley [1978] 20 ALR 409

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intoxicated person. Therefore the claim of Kevin for negligence would be defended
successfully by Terry in the light of contributory negligence.
Conclusion
Although Kevin can make a claim for negligence he is likely not to be successful as he
has contributed towards his own harm.
Question 2
Issue
 Can Florence make a successful contractual claim against Renzo
 Whether any obligations are imposed by law on Florence for paying GLO
 What are the contractual remedies which may be claimed by Florence in relation
to both the cases
Rule 1
A contract can be both written and oral. Whether a statement made by a party is
a representation or a term of a contract depends upon few specific contract law
provisions. One of such provisions is the Parol evidence rule. The rule had been
introduced through the case of Mercantile Bank of Sydney v Taylor9 and it was stated
by the court in this case that when contractual negotiations have been written down on
a paper there is no value of those terms which have not been documented. Any term
which is not documented when the contract has been written down is not considered to
be a term of the contract.
A contract is voidable on the option of the aggrieved party if it has been subjected to
misrepresentation. Misrepresentation in a contract takes place when a party induces the
other party to get into the contract based upon false or wrong facts. However
misrepresentation has to be in relation to a term of a contract as provided by the case
of Bisset v Wilkinson10
9 Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252
10 Bisset v Wilkinson [1927] AC 177.

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However it has been stated in the court Van den Esschert v Chappell11 the parole
evidence rule would not apply if the written contract is incomplete and the parties are
allowed to provide verbal evidence. In this case the plaintiff was promised that there
were no white ants in the house she purchases. However the term was not added in the
written contract and there were ants in the house. The court ruled in favour of the
plaintiff.
Application
Renzo had represented to Florence that the cafe for sale has a turnover of
$30,000 per week and can hold up to 70 persons at a time and also has a liquor licence.
However when the contract had been formed between the parties Florence came to
know that none of the statements provided by Renzo were correct. In the given situation
Florence would have made a claim of misrepresentation against Renzo as he provided
her with false and incorrect information upon which she realized and got into the
contract. However according to the principles of the parole evidence rule where
discussed terms which are not incorporated into a written contract they are not
considered as the terms of the contract. Upon the closer inspection in relation to the
written document Florence found that none of the terms were present in the contract.
However through the application of the Van den Esschert v Chappell case it can be
stated Florence can show verbal evidence in the court an make a successful claim
against Renzo. Therefore she has a valid claim against Renzo as she had been
assured of the terms before the contract was formed and the contract is incomplete.
Conclusion
Florence has a contractual claim against Renzo.
Rule 2
As discussed above a misrepresentation is a statement through which a party induces
another party by providing them wrongful information about the subject matter of the
11 Van den Esschert v Chappell [1960] WAR 114

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contract to induce them to get into the contract the provisions have been discussed
through the case of Smith v Land & House Property Corp12.
Further it had been stated by the judge in the case of dash that where the subject
matter of the contract has not been complied with by a party to the contract it accounts
to a breach of contract Poussard v Spiers13.
Application
In the given situation it has been provided that Florence went into a contract with
Tim for the renovation of her Cafe. It was provided by Tim to Florence that they only use
the best quality colours. It was also written in scheduled 2 of the contract that the
company will use colour which is reasonably determined by the company, install
bamboo Timber floating floors, install 26 pendant lights and install Modern Art work in
the cafe. However none of such features had been added by the company and
therefore they are liable for the breach of contract. Again after the written contract had
been signed there was a Collateral contract between the parties verbally that the work
would be completed by 1st September. This contract is not subjected to the Parol
evidence rule as it was discussed after the written contract was signed. As the work was
not completed on time the company is again liable to the breach of contract.
Conclusion
There has been a breach of contract by GLO thus Florence has no obligation to pay the
entire amount to them.
Rule 3
In the case of Addis v Gramophone14 it has been provided by the court that in case the
contractual right of a party has been violated the purpose of providing damages is to
restore the initial position of the party which it was in when the contract had not been
formed.
12 Smith v Land & House Property Corp (1884) 28 Ch D 7
13 Poussard v Spiers (1876) 1 QBD 410
14 Addis v Gramophone [1909] AC 488

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Further when a misrepresentation has been made by a party to the contract the
innocent party may rescind the contract and claim any consequential damages as per
Car & Universal Finance v Caldwell15.
Application
In the given situation it is clear that the company has made misrepresentation to
Florence by stating that they provide the best quality paint and not providing it in reality.
In addition the terms of the contract has been breached by the company as they failed
to install several fixtures to the cafe as promised through the written contract. Moreover
they have not been able to complete the work on time and as a result Florence has
faced consequential damages. As per the case of Addis it would be the objective of the
court to preposition Florence where she was in before the contract was formed. Thus in
this case Florence is entitled to claim the loss which has been incurred by her because
of the contract and also has the right to rescind the contract with the company.
Florence also has contractual claim against Renzo as the contract was not breached
and there was misrepresentation. She can claim damages for any loss which had been
incurred by her.
Conclusion
The above discussed damages are applicable.
Question 3
To
Client
Sub: Advice on business structures
15 Car & Universal Finance v Caldwell [1965] 1 QB 525.

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This memorandum will provide you with advice in relation to the following areas
 The kind of business structures which are available
 Which is the best business structure for minimising your tax
 How can you obtain the additional funds required for your business
 How can you ensure that you are not injured by poor management decisions
taking by partners Gary and Sandra
 How can you ensure that you have control over the day-to-day decision making
in the business
Firstly I would like to tell you that there are three kinds of business structure from
which a person main select best suitable structure as required based upon its features.
These structures are a sole trader, a partnership and a company. A company is further
divided into a proprietary company and public company.
A proprietor is the person who carries out a business in his own name. In this
situation the business and the person do not have any distinguished identity and is
regarded as the same by law. One of the primary advantages you would have if you
select this form of business structure is that it is very easy to setup and involves
negligible cost. However this business structure is not suited for your business because
the income which is derived from the business would be treated as your own income
and subsequently your tax liability would become higher16. In addition this business
structure does not provide provisions for limited liability which is essential to secure your
personal assets. Although you would have Supreme control over decision making in this
form of business structure you would not be able to run it with your partners.
The other structure I would like you to know about is that of partnership. This is a form
of sole trader which can be carried out by more than one person. This means that all the
features of a sole trader would be applicable on this structure along with the fact that
you can choose to carry out business with your partner. However in this forms of
business structure your decision making power would be considerably reduced as you
16 Clarkson, Kenneth, Roger Miller, and Frank Cross. Business Law: Texts and Cases. (Nelson Education, 2014).

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would be subjected to the decision of your partners who have a history of poor
management. In addition your tax liabilities would be the same as in the sole trader
structure. Another significant disadvantage of this business structure would be that you
would be liable for all actions which have been committed by your partners in the course
of business17. Therefore I would like to advise you not to select this form of business
structure for your business.
A company in my opinion would be the best suited business structure for your
business. However you need to know which form of company would be better suited to
you. In a proprietary company your tax and personal liabilities would be reduced as
compared to that of the above discussed business. In this form of business you can
become the director and exert control over the day-to-day decision making of the
business. You can ensure that your partners are merely made shareholders and they do
not take part in management of the business. You can also ensure that the constitution
of your company sets out the limits which any director of the company has to comply
with while taking decisions on behalf of the company. Although an act is not merely
invalid because it is stated so by the constitution you can claim compensation from the
other directors as the constitution has a contractual relationship between the company
and its members and the members with the members18. This situation would be helpful
if your partner’s insist on becoming directors of the company. The provisions of limited
liability which are available in the company would ensure that you are only liable for the
amount of investment you have made in the company in case something goes wrong
with your business. Although your business idea as very strong but it is always better to
foresee risk and make alternative plans for them. A Disadvantage which this business
structure would bring to you is that the cost of setting up this structure is comparatively
high as compared to the other structures discussed above. In addition you would not be
able to obtain any public funding which apparently you require for funding your
17 Davidson, Daniel V., Lynn M. Forsythe, and Brenda E. Knowles. Business law: Principles and cases in the legal
environment. (Wolters Kluwer Law & Business, 2015).
18 Beatty, Jeffrey F., Susan S. Samuelson, and Patricia Sanchez Abril. Essentials of Business Law. (Cengage
Learning, 2018).

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business. Although you can go for crowd funding I would not advise you for this option
because it is not very reliable19.
Therefore in the light of the above discussion I would like you to choose a public
company for your business. This is because all the features which are present in a
proprietary company would also be available in a public company. However an
additional feature of a public company is that you will be eligible to raise funds in
relation to your business structure. Although you would have all rights to take decision
in relation to how the company functions, the activities of the company have to comply
strictly with all legal regulations which are imposed on it. Moreover the legal regulations
which are imposed on a public company are the highest as compared to any other
business structure. In this situation the regulations will affect you in a positive manner
and no person would be able to commit any fraud in your company and if they do then
they may also be criminally liable under the Corporation Act 2001(Cth) or the Criminal
Code for their actions20.
Thus my advice to you would be that you initiate a public company for your
business. Although you will have to bear additional cost and compliance burden in
relation to its incorporation, with this structure you would be able to meet all your needs
which you notified us during the interview. Wish you all the best for your business.
Please do not hesitate to write to use in case of any questions regarding your business.
19 Hannigan, Brenda. Company law. (Oxford University Press, USA, 2015.)
20 KOH, Pearlie, Pey Woan LEE, and Hans TJIO. "Form, substance and context in company law." (2017).

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Bibliography
Adams v Lindsell (1818) 1 B & Ald 681
Addis v Gramophone [1909] AC 488
Anns v Merton London Borough Council [1978] AC 728
Barnett v Chelsea & Kensington Hospital [1969] 1 QB 428
Beatty, Jeffrey F., Susan S. Samuelson, and Patricia Sanchez Abril. Essentials of
Business Law. (Cengage Learning, 2018).
Bisset v Wilkinson [1927] AC 177.
Byrne & Co v Leon Van Tien Hoven & Co [1880] 5 CPD 344
Car & Universal Finance v Caldwell [1965] 1 QB 525.
Clarkson, Kenneth, Roger Miller, and Frank Cross. Business Law: Texts and Cases.
(Nelson Education, 2014).
Davidson, Daniel V., Lynn M. Forsythe, and Brenda E. Knowles. Business law:
Principles and cases in the legal environment. (Wolters Kluwer Law & Business, 2015).
Donoghue v Stevenson (1932) AC 562
Hannigan, Brenda. Company law. (Oxford University Press, USA, 2015.)
Hedley Byrne & Co v Heller [1963] 3 WLR 101
KOH, Pearlie, Pey Woan LEE, and Hans TJIO. "Form, substance and context in
company law." (2017).
Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252
Poussard v Spiers (1876) 1 QBD 410
Railways v Halley [1978] 20 ALR 409

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Smith v Land & House Property Corp (1884) 28 Ch D 7
Van den Esschert v Chappell [1960] WAR 114
Vaughan v Menlove (1837) 3 Bing. N.C. 467