Liability of Ming and Types of Company - Business and Corporations Law

This article discusses the liability of Ming based on the advertisement and the types of companies. It also explains the types of companies and their suitability as per requirements. The article also mentions the unacceptable words while selecting the name of the corporation.

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Business and Corporations Law

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PART A
ISSUE
The issues raised in this case are regarding the liability to Ming which is raised by the
advertisement. Did a contract is formed based on the advertisement with forty
customers? Did a contractual obligation is established for other ten customers?
Whether a valid contract can be formed based on the advertisement? Did the offer is
revoked by putting the sign in the shop?
RULE
The parties who have formed a valid contract are bind by its terms. They can be
enforced by the court in case the terms of the contract are not fulfilled by them. While
forming a contract, a party is required to make an offer. The offer can be made for doing
or not doing a certain act. It is important that the party making the offer must want to
bind by its terms. In Harvey v Facey (1893) UKPC 1 case, the court defined this principle
clearly. In this case, the court provided that a contract is not constituted between the
parties. The statement made by the party was not a valid offer since the offeror did not
want to bind by its terms (McKendrick, 2014). It is important that parties differentiate
between a valid offer and a request which is made by the party for gathering
information regarding the product or service (Fitzpatrick et al., 2017). An invitation to
treat is also a concept which is necessary to differentiate from an offer. As the name
implies, an invitation to treat is an invitation which is given by the party to others. This
invitation cannot be accepted by them to form a contract. It invites them to make an
offer to the party who sends the invitation. In Partridge v Crittenden (1968) 2 All ER
425case, the court defined whether advertisement is an offer or not.
It was held that the parties who posted an advertisement regarding their products or
services to information other parties, it is considered as an invitation to treat (Twigg-
Flesner, 2017). This rule did not apply in all cases as given in Carlill v Carbolic Smoke
Ball Co (1893) 1 QB 256. The advertisement can be considered as an offer which
depends on the facts of the case. As per the facts of this case, a product was advertised

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by Carbolic Smoke Ball Co through a newspaper. The advertisement reads that the
smoke ball can be used by people who have influenza. Many instructions were included
in the advertisement for customers regarding how to use the ball. The company also
claimed that the person who uses this product would not get influenza again. The
company offered £100 to people who get sick ever after using the ball. The company
also deposited £1000 in the bank account. This was done to show their sincerity to the
customers. After seeing this advert, Mrs Carlill bought and used the ball as per given
instructions (Suff, 2013). However, she caught influenza even after using the product.
She claimed her £100 from the company but her requested by rejected. She filed a suit
against the firm to recover the damages. The defendant provided that arguments in the
case that the claim is not valid since a contract is not formed between the parties.
The advert was a sales puff which cannot be taken seriously. An offer is not made, and
no acceptance is communicated either. The element of consideration is missing as well.
It is also not possible that an offer can be open for the entire world. The court evaluated
the case and rejected these arguments. It was held that the advert was not a mere sales
puff. The sincerity to form a contract was displayed by the company when the money
was deposited in the bank (Bakan, 2016). The court provided that a unilateral offer can
be made by a party which remains open for the entire world. The acceptance of this
offer is not required to be communicated. When the parties comply with the
instructions, it is considered that they have given their acceptance. By considering all
these factors, the court provided that a contract is formed between the parties.
Therefore, the company has to comply with its terms and pay £100 to Mrs Carlill as
promised. The unilateral offer made by a part can be terminated if the performance for
such contract is not started (Fitzpatrick et al., 2017). It can also be terminated if the
performance which is started by a party did not finish within a reasonable time.
APPLICATION
The advertisement posted by Ming was a unilateral offer. It was made by him to attract
more customers. This offer was open for the whole world as discussed in Carlill v
Carbolic Smoke Ball Co case. The acceptance of this offer can be given by the parties by
complying with its instructions. The instructions were clear that whoever brought the
advertisement with them will get a haircut for $10. Since the forty customers complied

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with the instructions, they have given their acceptance. Thus, a contract is formed
between them and Ming, and he is liable towards them. Other ten customers did not
comply with the terms of the offer. Since they did not bring the advertisement, they did
not give a valid acceptance. A contract is not formed between them and Ming, thus, Ming
is not liable to them. The adverts cannot be considered as a mere sales puff, and it has
the authority to bind Ming into contractual obligations. To revoke the offer, Ming cannot
put a sign on the shop. Ming has to define a time limit in the advertisement after which
it will become ineffective.
CONCLUSION
Contractual obligations are formed between Ming and forty customers, so they can get
haircut for $10. No contract has formed with ten customers, so they cannot get a haircut
for $10. Ming is liable towards everyone who brought the advert with them to give a
haircut for $10. This offer cannot be revoked by putting a sign on the shop.

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PART B
TYPES OF COMPANY
Types Summary
Public company It is easier for these corporations to raise
capital. They can issue shares which can
be purchased by anyone. Example
Wesfarmers and Woolworths.
Public company limited by shares Members’ liability is limited to the number
of shares purchased by them.
Unlimited public company Members’ liability is unlimited. Their
personal assets can be used to repay debts
of the enterprise.
Proprietary company Easy legal framework and less investment
in incorporation. Number of members is
limited (maximum 50). It cannot issue its
shares to raise capital for its operations
(Cox, 2008). Example Visy and Meriton.
Unlimited proprietary company Members’ liability is unlimited.
Proprietary company limited by shares The liability of members is limited up to
the amount invested by them in the
company.
TYPE OF COMPANY SUITED AS PER REQUIREMENTS
PROPRIETARY COMPANY
The initial investment is relatively low while incorporating a proprietary company. All
the members belong to the same family, so they can distribute shares between
themselves to control the company effectively. The legal framework of the company is
comparatively easier as well. Since public money is involved, the public corporations
have to comply with various legal regulations (Fitzpatrick et al., 2017). They have to
make continuous disclosures, prepare books of accounts and lodge them and appoint
auditor. It is not the case with a proprietary company. The members can limit their
liability in the company as well based on which their personal assets will not be used in

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repaying the debts of the company. Moreover, parties can change the type of the
company by transferring a proprietary company into a public limited company. Thus, a
proprietary company is the most suited option in this case. The parties will have more
options in case they form a proprietary company than compared to a public company.
TYPE OF THE COMPANY IN FIVE YEARS
Section 162 of the Corporations Act 2001 (Cth) provides provisions regarding changing
the type of the company. As per this section, a proprietary company can be changed into
the unlimited proprietary company, public limited company, and unlimited public
company. Section 163 provides that the type of the company can be changed by lodging
an application with ASIC along with a copy of special resolution, statement of directors,
constitution and other documents (Austlii, 2018). Section 164 provides that after being
satisfied with the application, ASIC changes the type of the company. After its
incorporation, the company will remain in the category of a small proprietary company
as given in section 45A. It provides that the number of members cannot be increased
more than fifty. Moreover, this section provides three terms; if two of those three
conditions are fulfilled, then the company will be considered as a small proprietary
corporation. Both of these elements must be fulfilled in a particular year. Firstly, the
revenue of the company is less than $25 million. The employees who are hired by the
company are less than fifty. This number includes both full time and part time
employees. The assets of the corporation are less than $12.5 million (ASIC, 2018a).
Therefore, in the first year after incorporation of the company, it will remain in the
category of a small proprietary company.
However, the category will not be same after five years. As per section 45A, if two of the
following three conditions are fulfilled, then the company become a large proprietary
company (Legislation, 2018). These conditions must be fulfilled in a particular year.
Firstly, the revenue of the firm is $25 million or more. The employees hired by the
company are 50 or more. This number includes both full time and part time employees.
The assets of the company valued $12.5 million or more. In this case, all these
conditions are fulfilled by the company after five years. Therefore, the company will
change its type after a period of five years from a small proprietary company to a large
proprietary company. Along with the change in type of the company, the legal

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framework of the company will be changed as well. The corporation will have to
prepare books of accounts and lodged them with ASIC timely. It had to comply with
continuous disclosure requirements and appoint an auditor.
UNACCEPTABLE WORDS
The promoters of the company have to comply with various provisions while selecting
the name of the corporation. These provisions are issued by ASIC based on which
certain words and phrases are prohibited. These regulations are imposed in order to
ensure that people are not misguided by the name of the company. The names which
show or imply any connection to the Royal family are prohibited. Names which show
connection to ex-servicemen is restricted as well (ASIC, 2018b). The names which are
already registered with ASIC or which are too similar are prohibited as well. The
availability of the names can be check by the website of ASIC. The names which are
shown in green colour are available, whereas, the red colour shows unavailability. The
names displayed in amber colour require parties to get the prior approval of ASIC.
Unacceptable/Restricted word phrases Reason
Royal Family names These names show connection to the Royal
family which can mislead people.
Banking names The name of financial institute requires
prior approval since consent of Australian
Prudential Regulation Authority or APRA
is necessary.
Names related to Australia These names show the connection of the
company with the government which
misleads parties.
‘Anzac Coffee’ is displayed in amber colour on the website of ASIC. The parties cannot
select it while forming the company. The prior consent of ASIC is necessary to get in
order to select this name.

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REFERENCES
ASIC. (2018a) Are you a large or small proprietary company. [Online] Available at:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-
financial-reports/are-you-a-large-or-small-proprietary-company/ [Accessed
25/09/2018].
ASIC. (2018b) Company name availability. [Online] Available at: https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/company-name-
availability/ [Accessed 25/09/2018].
Austlii. (2018) Corporations Act 2001. [Online] Available at:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed
25/09/2018].
Bakan, J. (2016) Social marketing: thoughts from an empathetic outsider. Journal of
Marketing Management, 32(11-12), pp.1183-1189.
Cox, J. (2008) Six Different Types of Public and Proprietary Companies. [Online] Available
at: http://www.jamescox.com.au/six-different-types-of-public-and-proprietary-
companies/ [Accessed 25/09/2018].
Fitzpatrick, J., Symes, C., Velijanovski, A. and Parker, D. (2017) Business and Corporations
Law. 3rd ed. Chatswood, NSW: LexisNexis Butterworths Australia.
Legislation. (2018) Corporations Act 2001. [Online] Available at:
https://www.legislation.gov.au/Details/C2017C00328 [Accessed 25/09/2018].
McKendrick, E. (2014) Contract law: text, cases, and materials. Oxford: Oxford University
Press.
Suff, M. (2013) Essential Contract Law. Abingdon: Routledge.
Twigg-Flesner, C. (2017) Consumer product guarantees. Abingdon: Routledge.