Legal Regulation of Business Structure and Liability of Contracts

This document discusses the legal regulation of business structure and liability of contracts. It covers the issues related to the amendments of the company's constitution, rules under the provision of CA, validation of the primary and secondary amendment, liabilities of Kitty and Poppy, and advice.

RUNNING HEAD: LEGAL REGULATION OF BUSINESS STRUCTURE
Legal Regulation of Business Structure
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LEGAL REGULATION OF BUSINESS STRUCTURE
Part A:
There are two issues that can be emerged in the seen amendments of the company’s
constitution. The primary issue in the provided case of AMAZE Ltd is that whether the main
change made in the company’s constitution is valid legally. The next issue that can be focused in
this case is that whether the second change in the constitution of the company for the
expropriation for the shares of the minority stockholders would be lawfully valid or not.
In this provided case, AMAZE Ltd is a public listed company having a specialism in
landscaping, and they have huge monopoly over the sculpture and landscaping market and very
few of the companies do these type of work. All total there were six stockholders in the
organisation where there were two directors of the organisation. Bob and Ada are considered as
the directors of the organisation and they hold 40 per cent of the company’s share. The
remaining shareholders are Elle, Otto, Kanak and Hannah hold 5 per cent of the company’s
share.
At the incorporation’s time of the organisation, it developed its own constitution where
the certain rule and regulation was inserted. There were also certainly provided that were
included during creation of the constitution. Rule 12 is one of the provision of the organisation’s
constitution where it is explained that for contract and any transaction that amounts up to $1
million or further. In this situation the approval is necessary from the stockholders for the
transaction to take place and there was a restriction in the director’s power.
Rule 15 of the company’s constitution clearly explains the facts that if the shareholders
vote in a resolution if they are tied in the motion cannot be re-vote or cannot be passed in a
meeting that will be held separately. According to the Rule 40 of Company’s constitution any
member of the company selling the shares should be offered with the share to the stockholders

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before selling to the public. As there was a negotiation in between Sunshine Botanical Gardens
and Ada for the services of the sculpturing, gardening and landscaping, where the price of the
contract for the mentioned services would be above 1 million AUD, AMAZE Ltd conducted a
general meeting with the stockholders of the organization for voting and discussing on the topic
of transaction. Hannah is a stockholder amounting to 5% of the total shareholder in the
organisation and Chief Executive Officer who was the actual AMAZE’s competitor, decided in
postponing by bribing Kanak, Elle and Otto for voting against the made deal. Therefore as the
vote tied up two times Hannah has taken the opportunity and helped her organisation Hedge Fun
Ltd for getting the contract with SBG.
Relating to the provided case the result for the conduct, Bob and Ada decided to conduct
a special meeting where the amendment of the organisation’s constitution was proposed. In the
primary amendment there was a revoke in the right to vote for the stockholders having a stock of
share that is amounting to less than ten per cent .of the total share of the organisation. The very
next amendment was to provide the directors of the organisation to expropriate the stock of any
minor stockholders involved in administering the company’s competitor.
Rules under the provision of CA:
The rules stated in section 140 of the CA provides for relates related to the constitution.
The section is related to the rules regarding the effect on the constitution and the replaceable
rules of the company. As per the rules of the section there is a contractual relationship between
the parties to the constitution of the company. These include the members and the company and
the members and the members.

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Further the rules in connection to the alteration of constitution have been given through
the provisions of section 136 of the CA. Under this section it has been stated that the company
has right to alter the constitution of the organisation through the passing of a special resolution.
This means that at least 75% of the total members of the company must give voted in favour of
the constitutional amendment. Besides, it has been stated by the section that a clause can only be
changed of a further condition concerning the change of the clause has been complied with by
the change process. Besides the section also provides that the clause which acts as a further
situation for the change of another clause can also only be altered or amended if the clauses itself
have been complied with or any further clause concerning the clause is complied with. Members
have been provided with the option of claiming oppressive remedy. This means that under
section 232 there is a provision of claiming against the company for any unfairly prejudicial
action taken against the interest of the minority shareholders.
Validation of the Primary Amendment:
Under the provisions of the CA Section 136 can be applied in this provided case it is
clear that the primary amendment of the company was taken into the scenario by the method of a
general meeting that was special and therefore Subsection 2 of the above mentioned section.
If the case of the Bailey v New South Wales Medical Defence Union Ltd (1995)1 it is
easily considered that if it is not approved in writing the stockholders cannot be bounded by the
amendment of the constitution u/s section 140 of the Corporation Act 2001. Applying section
232 of the Corporation Act 2001, in this provided case it is observed that the primary amendment
for revoking the right to vote for the stockholders having a share of less than ten per cent would
1 Bailey v NSW Medical Defence Union Ltd (1995) 132 ALR 1

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be domineering and will be contradictory to the best interest of the minor stockholders like Elle,
Hannah, Kanak and Otto.
Validation of the Secondary Amendment:
On application of the judgment of the case Ding v Sylvania Waterways Ltd [1999]2 in this
present situation it is observed that Hannah’s behaviour in using the information of the
organization concerning about the transaction for sharing the organisation’s competitor was
harmful to AMAZE Ltd as the organization has lost the agreement amounting to a large amount
of million dollars. Therefore Hannah’s share expropriation can be considered as valid.
Advice:
It is concluded from the above mentioned facts that it is advisable to Kanak, Elle, Hannah and
Oto that the primary change in the constitution of the company is not valid legally as would be a
matter of contradiction to the best interest of the organisation.
2 Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424

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Part B
Cattuccino Limited
The present case scenario relates to the idea of establishing a pet-friendly café was made by the
party Kitty White in which the customers would be able to enjoy the company of cats that have
been living in the café while having their meals. The establishment of this venture encompassed
several aspects for which Kitty White sought to take the advice of her solicitor and associate
Poppy Black. The issues discussed by them included the measures and strategies to be taken to
promote the business, cater to the interests of probable shareholders, issues of disclosure
documents, sourcing of directors and registering the company. The provision of advices in this
matter involved Poppy Black to charge a certain amount of money for the service. Moreover,
Poppy also seemed interested in the prospects of the business and therefore wanted to provide
Kitty with additional assistance by making her acquainted with individuals who could help her
establish the business successfully.
Poppy aided Kitty’s business venture and showed interest in it by contacting her brother and
signing a contract by the name Cattucino Limited for the purpose of acquiring cat-themed
apparel, each priced at $300. The next step was taken by Kitty to set up the business venture
involved the negotiation of a contract with the organisation Commercial Café Limited for the
purpose of acquiring the tools needed in a café. Such equipment included four top-of-the-line
machineries, each worth the amount of $20,000. The contract for the purchase of this machinery

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was signed by Kitty by the name Cattuccino Limited. The contract entailed the necessity of
ratification within 1st of October 2019.
Poppy further provides adequate assistance to Kitty regarding meeting with individuals who
would be interested in the cat-friendly café business venture for investing and directorial
purposes. Following this process, Kitty asks Poppy to aid her with the registration and
finalisation of the organisation along with the nomination of directors. Due to the unavailability
of the name Cattucino Limited during the time of registration, the alternative name of Cat Latte
Limited is decided upon. Following the process of registration, Commercial Café Limited is seen
to send the delivery of the café equipment, which though received is not completely paid for by
the directors. The ratification of contract is also agreed upon by the directors. However, later on
the directors refuse to ratify the agreement with Tom.
Out of the two aspects evident in the given case, one can be recognised to be the liabilities of
Kitty regarding the contract with the organisation Commercial Café limited. The other evident
aspect includes the Poppy’s liability regarding the contract signed by her with Tom.
CA 2001
Section 131 as mentioned in the corporation Act of 2001, provides for issues pertaining to the
signing of contracts before a company has been registered. The subsection 1 of Section 131
further mentions the situation where an individual signing a contract before a company has been
registered, for his or her benefits or the interest of the company itself, would become liability to
abide by the contract along with the entitlement to enjoy the benefits after the company is
registered. Such benefits would be provided in the case that ratification of the contract is
performed within the mentioned time period.

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The subsection 2 mentions the case where if the company fails to get registered within the
mentioned time period for ratification, or the case where the company fails at ratification, the
individual who had signed the contract for the company would be bound by the contract to
compensate for the incurred damages.
Subsection 3 of section 131 mentions that the individual can be asked by the court to pay for
either part or full for the incurred damages. Additionally the court may also order the
transference of property received by the company owing to the contract, or pay a recovery
amount to the involved party in the contract. The case of Tracy v Mandalay(1953)3 mentions that
an individual signing a contract in the stead of a company before its registration would be bound
by the contract.
Kitty’s Liabilities
The application of the subsection 1 of section 131 to the case presents Cat Café Limited to be
liable and bound by the signed contracts and additionally receive the benefits of the contract with
Commercial Café Limited due to their agreement of ratification. Pertaining to the non-payment
of dues, Kitty is bound by the contract to make the required payments mentioned in the contract,
as per the provisions of subsection 3 of Section 131. This situation is applicable in the case that
Commercial Café Limited decides to pursue litigation.
Poppy’s Liabilities
The application of subsection two as mentioned u/s section 131 presents that poppy has
the liability to compensate for the incurred damages of Tom. It is so because ratification of the
contract between poppy and for investing and directorial purpose was refused after the company
3Tracy v Mandalay(1953) 88 CLR 215

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was registered as Cat Latte Limited. The judgment presented in the case of Tracy v
Mandalay(1953) can be applied to the present case, providing the statement that Poppy is to be
held liable by Cat Café Limited due to the contract that she signed with Tom before the company
had been registered.
Advice
From the discussion of the above mentioned case, it can be concluded that Kitty is advised to
make the necessary payments to Commercial Café Limited as per the contract that she signed
with the company. Furthermore, it is also advised to Poppy to pay for the damages that were
incurred by Tom.

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Reference:
Bailey v NSW Medical Defence Union Ltd (1995) 132 ALR 1
Tracy v Mandalay(1953) 88 CLR 215
Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424

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