Contract Law and Company Formation

This assignment delves into contract law concepts such as capacity to contract and void agreements. It analyzes a scenario involving George, an employee authorized to offer discounts, exceeding his authority by agreeing to a 15% discount for Brendan. The case is examined through the lens of relevant legal precedents like *Hamilton v Lethbridge*. Furthermore, the assignment touches upon company formation in Australia, referencing the Companies Act 1961 and Corporations Act 2001.

Law case study

Table of Contents
INTRODUCTION...........................................................................................................................1
Question 1........................................................................................................................................1
Advising Michael and his son about steps to be taken for incorporation of company along with
advantages and disadvantage of running company......................................................................1
Question 2........................................................................................................................................4
Advising Poolworths Ltd. About their legal position .................................................................4
CONCLUSION................................................................................................................................6
REFERENCES................................................................................................................................7

INTRODUCTION
Law is being defined as an overall system that funnels the legislative authorities of the
country in providing numerous rules and regulations for the purpose of maintaining effective
monitor and control over all the activities of the country. The present report of provides solution
for some problems occurred in the business. It provides solutions for the problems on the basis of
appropriate rules and regulations applicable on those situations. Rules and regulations of
company law and contract law are being majorly taken into consideration for the purpose of
evaluating solutions for industrial problems.
Question 1
Facts:
Micheal operates restaurant as a family business. Recently he has purchased another
restaurant for expansion purpose. Micheal's sons want to convert their family business in a
family run company. Further, they also want to replace the name of company ti “Sicilian Treats”
Micheal is not understanding the advantages from operating a company. The Micheal is afraid of
that the conversion of business into the company have a disadvantage that his sons would try to
push him out of industrial environment.
Issue:
To advise regarding advantages & disadvantages of running a firm as a company along
with various steps that are needed to take for incorporation and formation of company and
changing name of firm as well.
Rules:
Companies law: The company law of Australia deals with providing several guidelines,
rules and regulations to be complied by each company functioning within the country (Morgan,
2018). These laws prevent control and monitor over each industrial activities of a company so to
ensure the elimination of fraud and other activities in the country. CA, 19611 and CA, 20012
covers under the company’s law in nation.
These acts provide range of legislations, guidelines & standards which are needed to be
comply with by company at the time of performing its functional activities. These laws contain
laws and rules relating to various activities from the incorporation till liquidation of firm.
1 Companies Act 1961
2 Corporations Act 2001
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Formation of a company: The corporation Act 2001 provides various guidelines and
rules that are needed to be followed by the promoters in order to form a company (Hannigan,
2018). The law provides various steps to form a business as under:
 Selection of legal structure of entity.
 After choosing the legal structure, the first step is for the application under Australian
business number (ABN) (How to Start a Business in Australia, 2019). For this purpose
various forms are needed to be filled.
 Another step is to choose an appropriate name for the business which must not be similar
to any other company running in the country.
 After choosing an appropriate name for the company, it is needed to be registered.
 Getting the domain name of the company register for the website is next step of name
registration.
 Setting up memorandum and articles of association of the company.
 Creating and maintain all the required documents as per Corporation Act 2001.
 Setting up ownership structure of the company.
 The Application of AGBR Service3 for the purpose of getting the company registered.
Restructuring of business: when an industry has decided to be converted into another
type of business structure. It results in changing the overall business ownership and controlling
structure.
Advantages of incorporation of a company over a sole trader: Formation of a
company provides several benefits to its owners. Major advantages of a company can be
analyzed as under:
 The major benefit of incorporating a company is that the shareholders i.e. the owners of
the company contains limited amount of liability over company's debts up to shares held
them (Ridley-Duff, 2018).
 Further, owner of sole proprietor needs to pay self-employment tax over the income
generated by him from the sole proprietorship. On the other hand, owners of company are
not liable to pay any tax over profits of company.
 In addition, the CA, 2001 provides separate legal entity to the company. With the help of
which company would keep running even after death of all the owners.
3 Australian Government Business Registration Service
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Disadvantages of a company: Following are the core disadvantages of formation of the
company:
 Huge amount of formation cost is a major disadvantage of formation of the company.
 Being bounded by several legislation, company needs to keep a huge number of
documents with it.
 Moreover, a company needs to pay corporation tax each year for the profit generated by it
during a specific time period.
Ownership structure of company: At the time of formation of a company, it is essential
to develop memorandum and articles of association (Morris, 2018). These documents includes a
clause of ownership, in which directors' name are to be written. Further, the clause also requires
to mention amount of shares that would be held by each director of the company.
The directors mentioned in the memorandum and articles of association, are remained
owner of the company up to the amount of shares in the company until they changes in the
company's articles of association (Laing and Hoy, 2018).
Application:
The above rules of company law are applicable over the existing case scenario. By
implying the aforesaid rules, it can be analysed that if the Micheal and his sons decide to convert
their business into company, his sons would require to comply with several stages of
incorporation provided by the corporation act 2001 and companies act 1961. if they wants to
alter their name the chosen name must not be similar to any other existing businesses of
Australia.
Conclusion
It can be analysed from above rules of corporation act 2001 and their application over
the existing case scenario, it can be advised to Michael that he should get agree with the idea of
his son of converting his sole trader business into the company as it would provide several
benefits.. Further, for the purpose of overcoming from his fear of to be pushed off from the
companies' ownership, he must ensure that his name should be included in the list of directors of
the company along with appropriate amount of shares upto which he wants his inclusion in the
business.
Further, Micheal's sons can be advised that , altering of the name of business is possible
only, if they ensure that there is no another business is running with the similar name in the
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country. Further, they shall analyse all the stages of incorporation and shall form company
through those stages.
Question 2
Advising Poolworths Ltd. About their legal position
Facts
George is a salesman of Golden gate Technologies (GGT) Ltd. Who developed a
software. He is allowed to provide maximum of 10% discount to his customers. Brendan, the
CIO of Poolworths Ltd. Approached to Brendan for the purpose of purchasing the software.
George provided 15% discount to Brendan. After discussing it with his colleagues, he gets to
know that the salesman is not authorised to give 15% discount. When Brendan contacted with
the managers of GGT Ltd. They also refused to accept the 15% discount.
Issue:
Major issues in the case is to analyse the legal position of Poolworth Ltd. And analysing
validity of the contract made between George and Brendan.
Rules:
Contract law: Contract law of Australia provides various rules and regulations to be
followed by each person of the country at the time of entering into a contract. The law provides
several terms that makes a contract valid (Smith, 2018). Further, as per the Australian contract
law, if any contract fails to fulfill any one term of being a valid contract, the contract will be held
vopid contract. A void contract can no be sued in the court.
Major terms of creating a valid contract as as under:
 Offer: Offer is a basic requirement of a contract which can be defined as an invitation
given to another party for doing of denying to do any specific activity or performance.
 Acceptance: As per the contract law, when the person to whom offer is made agrees to
perform activity as per the terms of contract, it is termed as an acceptance (Young, 2019).
 Consideration: Consideration refers to something in return. It is an essential condition of
forming a contract. Each party to the contract must get something in return against their
performance for another party.
 Contract: an offer when accepted by the party to whom the offer is proposed, along
with sufficient amount of consideration, the agreement made between them can be
termed as a contract.
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Capacity to contract: It is a term which is needed to be fulfilled while developing a
contract. As per this clause of contract law, all the parties to the contract shall be in the capacity
of entering into contract (Bigwood and Mullins, 2018) Any contract enter with a person who is
not in the capacity to enter into a contract would result in development of a void contract that can
not be enforceable by law. Below mentioned are some of the major criteria provided by contract
law for analysing the capacity to contract:
 party to contract shall not be a minor.
 party should not be declared as bankrupt.
 party to the contract should not be mentally disable.
 A person bound to contractual agreement shall not enter into any agreement beyond the
authority assigned to him (Dolin, ed., 2018)..
Result of a void agreement: An agreement which is void can not be enforceable by law.
No party to the agreement can sue some other party in case he has entered into any void
agreement, he would not be able to exercise any legal right for the same.
In Hamilton v Lethbridge (1912) 14 CLR 236 case, Harmilton entered into a contract
that after passing a certain degree, he would start practicing in Toolwoomba. After qualifying he
denied to start practice and claimed that the contract is not valid as at the time of making contract
he was minor and not in capacity to make a contract (Hamilton v Lethbridge (1912) 14 CLR 236,
2018). On this court declared the contract as void and contravene to the thought of giving any
legal authority to Hamilton against incapable party.
Application:
It can be analysed from above rules that as George was authorized to give 10% discount
to the customers. He entered into an agreement of providing 15% discount to Brendan which was
beyond his capacity. In this regard, rules of contract law regarding capacity to contract can be
applicable over the present case scenario. Moreover, the predecided case shows that the legal
authority of person who has entered into a contract who is incapable to be entered into a contract.
In this way, the case can also be applicable on provided case scenario.
Conclusion
By implying the discussed rules and predecided case over the existing case scenario, it
can be analysed that George was not in capacity to enter into contract of providing 15% of
discount. In this regard, agreement between George and Brendan will be termed as void
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contract. In addition, by implying the above pre decided case, it can be concluded that person
who enters into a contract with an incapable person to enter into a contract, he does not have any
legal authority against the person. Further, as Brendan has made the contract on the behalf of
Poolworths Ltd., the company would contain the same capacity towards the contract as the
Brendan. In this regard, it can be advised to Poolworth that as Brendan has entered into an
agreement with someone who is incapable to enter into a contract, it does not have any legal
control against George or GGT Ltd.
CONCLUSION
From the analysis of above case studies, it can be summarized that each law of the
countgry is needed to be complied by each person of the country. Formation of company is
beneficial as it provides several benefits to the owners. For the purpose of forming a company, a
huge procedure is needed to be followed. The study as also concluded that for the purpose of
entering into a valid contract, each terms of contract law is needed to be followed. Entering into
a contract with a person who is not in the capacity on create a contract does not provide any legal
authority to another party against the void agreement.
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