LAWS20059: Business and Corporation Law Assignment - Term 1, 2018

This report addresses a deferred/supplementary examination for LAWS20059, focusing on business and corporation law. The assignment presents a scenario where clients, initially partners in a partnership, are considering incorporating their business. The report provides legal advice on various aspects of this transition, including the implications of incorporation, changes in personal liabilities, and the impact on stakeholders. It explores differences between partnerships and corporations, compliance requirements under the Corporations Act 2001, director duties, and shareholder rights. The analysis includes discussion of relevant legal cases and provisions, such as those related to director conduct and the sale of shares. The report aims to provide clear and concise legal advice to a supervising partner, addressing the clients' specific concerns and guiding them through the process of business restructuring.

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Running Head: BUSINESS AND CORPORATION LAW 0
Introduction to law and its study
7/27/2018
Student’s Name

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Table of Contents
Question 1........................................................................................................................................2
Question 2........................................................................................................................................3
Question 3........................................................................................................................................5
Question 4........................................................................................................................................6
Question 5........................................................................................................................................8
Question 6........................................................................................................................................9
References......................................................................................................................................12

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Question 1
Incorporation of a Partnership Business means the formation of a company. As clients want to
convert his existing partnership business into a Corporation, there will be certain changes accrue
in the basic structure of their business. Since it is very clear that both i.e. Partnership and
Corporations are different forms of business, yet there are some differences between them. Till
the date, the client is a partner in a partnership business and now, due to the said changes, the
same shall act as director of the corporation. Before advising anything to the client, this is
necessary to understand that what major change will be there in the business of client cause of
such conversion. Further, this is also notable that cause of this change, there will be an impact of
the business of clients and stakeholders such as customers and suppliers mainly. Firstly, due to
this change, the client will be required to cancel it is ABN (Australian Business Number)
(Australian Business Register, 2018). Secondly, some other formalities for this change will also
have to comply with on the part of the client.
As here, the client has asked the legal advice on the aspect related to “Personal liabilities of
partners after this change”, the briefing is given here on this aspect.
Partnership business usually forms in an unlimited liability structure. As the targeted client does
not carry their business in the form of a Limited Liability Partnership, at present the same has
unlimited liability in the capacity of a partner of the partnership firm. This is to state that
companies have a separate legal personality (Featherby, 2011). Directors of a company cannot be
held liable for the acts and deeds of the company. Although, directors are the persons who act on
behalf of the company and do all the business transaction, yet they cannot be held personally

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liable in general (businessdebtline, 2018). Further, at present, whenever the firm faces economic
crises, partners need to introduce additional funds to the same. Now after changes, directors will
be eligible to raise funds from the company’s shareholders. There are many differences between
a partner of a partnership Firm and a director of the company in terms of personal liability. At
present client, being the partner of a firm can be held personally liable for the contracts entered
in the day-to-day business of the firm but after the subjective change, in the capacity of director,
the same will not be held liable for anything that they do in the regular course of business.
Although, when the directors will do act outside the limits of provided powers, the can be held
personally liable in the case of a company (Kimball, 2018). Both partners and directors own a
fiduciary relationship with their business, yet to say that the situation of a partner is far critical.
Directors are less personally liable in comparison to partners of a firm. Therefore, from the view
of this aspect, incorporation of Partnership business will be a good idea for the client.
Question 2
Changing the structure of a business is a big decision for the everyone from management to the
stakeholders. Compliance is another aspect of this change. For every type of business structure,
different levels of compliance are there in the Law. At present, Partnership Act of the state is
applicable to the business of the client, but after the respective change being a corporation of
Australia, Corporation Act, 2001 will be applicable thereof (Dagwell, Wines and Lambert,
2015). A partnership is a business structure where management thereof termed as “Partners”.
They act on behalf of the business and act as an agent. Some compliance such as maintenance of
account is there. However, Compliances in Partnership Firm is far easy in comparison to the
company. After the incorporation of business, the client will have to follow several compliances.

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Ownership and management are separated in the case of a company (law-right, 2018). This is to
inform the client that the incorporation of business in the form of Proprietary Company will not
attract the compliance related to a minimum number of meetings. A Public company need to the
held a meeting of shareholders within 18 months of it is the formation and within 5 months from
the last date of every financial year (DLA Paper, 2018).
After the change, compliance level will enhance for the clients as legislation and provisions
related to a company are more way typical. As Client is concerned about the compliance level,
this is to state that in the present structure, management is the part of the process but after the
change, in addition to management, shareholders will also be there. This is the reason that
powers of business will be divided between directors and shareholder on different subjects and
topics thereon. In conjunction with this, lodgment and publication of yearly financial statements
is another compliance that a company needs to do (ASIC, 2018a). In the present scenario,
partners need not share their business and financial data with anyone. In comparison to a
partnership firm, a company has to meet out with more requirements. Under Corporations Act,
2001 lot compliances are mentioned in various sections that a company needs to do. A minimum
number of directors, minimum qualification, and eligibility criteria are stipulated under the
aforesaid Law (ASIC, 2018b). After incorporation, the company will have to take the approval of
directors via resolution to perform it is functions.
Shares are an important factor of compliance. Unlike the partnership firm, in a company, a
company needs to issue shares to it is shareholders. These shares decide and define the right of
members in the company. Shares are a transferable asset. Whenever a shareholder would transfer
his /her shares to another person, it will be the responsibility of the company to register them in
the name of the transferee (Ferguson, 2013). Apart from this, other compliances such as prior

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approval in relation to the amendment in the chartered document, fund raising, capita issue will
also be there after the change. After aforesaid discussion, this is to conclude that in terms of
compliance, a Partnership firm is an easy mode, and after the change, the client will have to
follow all the requirements mentioned under Corporations Act, 2001 (Cth).
Question 3
Corporation Act 2001 is the legislation that governs all the companies in Australia. This is the
act that provides all the provisions related to working and compliance of a company. Directors
are the part of the management of the company and the same plays a very significant role in a
company. Being on the position of director, they have some responsibility towards their position.
Section 180 to 184 of Corporations Act 2001 contains the duties that are required to perform by
directors and officers of the company (Legal Services Commission of South Australia, 2018). As
earlier informed to the client, a corporation has a separate legal personality and a director cannot
be held personally liable for any act that he/she does I the capacity of director. However, it was
held in the case of Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22 that when
any director or officer does any unethical act and take unfair benefit of the position of director
then in such a situation they can be held personally liable.
In the present situation, one of the directors of the company has breached his duty and this
conduct is questionable under the Corporations Act, 2013. In addition to the duties, penalties and
punishments are also mentioned in these sections. As client’s concern is related to the breach of
duty on the part of one of the director, this is to state that the guilty person can be held liable for
the penalties mentioned under the act. Section 206C is the lead section of the act in this direction.
According to the provisions of this section, on the application of ASIC, a court can mark a

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director as disqualify to being the director of the company if a declaration was made under
section 1317E or 386-1, that are sections related to a civil penalty (austlii, 2018). Here, the client
is advised to report this conduct of the director to ASIC so that the can be punished.
In addition to the above, whenever the director comes to know about any questionable conduct of
any of the director, then it is the responsibility of the rest of the director to investigate such
conduct. Therefore, along with reporting to ASIC, the client is also required to initiate the
proceedings related to the investigation. As the company has already removed the guilty person
from the directorship and the same is a former director of the company. This is to inform to the
client that a director will be held liable even after his resignation or removal from the company if
he/she has done some questionable conduct during his/her directorship or even after his/her
directorship. The former director, in this case, will be held liable, as his act is questionable in
relation to his duty towards his position. The company has all the rights to make a complaint to
ASIC in against of this former director. The client is advised to make a report and to be more
careful in the future.
Question 4
As the client has asked the advice on the question stated forcing the former director to sell his
shares in the company, following is the briefing on this topic. Firstly, this is necessary to
understand that while the appointment of the former director, what terms, and conditions have
been decided. If according to the terms, it has decided that the director will have to share his
shares just after leaving the company then the only company can ask for the sell of his shares.
Shares are the property of a shareholder and the same is not related to the directorship of the

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company. Although similar to this case, a director can be a shareholder also. A shareholder
cannot be forced to sell his shares in the company until unless anything is already decided.
Here this is also necessary to mention that shareholding also gives the right to make decisions in
the company. How much a person will be asked while taking the decision is based on the fact
that how many shares he/she have. In the provided situation, the client has not mentioned
anything about the number of shares that the former director held. In such a situation, this is
difficult to state that provision related to minority shareholders will be applicable to such director
cum shareholder or not.
As mentioned earlier that shares provide the right to vote to the shareholders, in this situation this
will be good to take the shares held by former director back. As he has already done a
questionable conduct, it is not safe for the company to consist of such person in an indirect
management of the company. In this situation, the company has an option to apply to ASIC for
the selling of shares by the former director. Further, in the case of Pty Ltd., the board of directors
can limit the shareholder up to a level for the best interest of the company. In this scenario, rests
of directors are liable to perform their duties under the Corporations Act, 2001. Former director
is no longer a part of the management but the rest of the directors are still liable to act in the best
interest of the company. Any specific provisions are not cited anywhere in the act related to this
topic, but if directors think that former director should not have any shares of the company then
in order to perform their duty, they can ask the former director to sell his share to the company.
Forcing is not a valid thing to do. Irrespective of the fact that directors are adhered and desirable
to work in the best interest of the company, they cannot act beyond the provided powers. This is
to advise that if the former director is not falling under the category of minority shareholder then

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the director can ask him to sell his shares to the company but the same should also put into the
knowledge of ASIC on a safer side.
Question 5
Every company works for the profit, except the non-profit companies. However, this is not
necessary that every business will shine forever. In every business, there are sometimes when the
same faces financial difficulties. Being the management of the company, it is the liability of the
directors to bring the company out from such difficulties. As of now, the client is facing financial
difficulties and asking for advice, this is to state that many ways are there by which a company
can come out from this difficulty. Firstly, Directors are advised to check out the reasons for such
difficulty. There can be several reason cause of that a company faces financial difficulties.
Identification and removal of such factors are necessary so that the further plans would not get
the effect.
Raising some working capital is a good option. By introducing some more funds to the company,
directors can save the same from a situation of financial difficulty. They are advised to raise
capital from shareholders and to invest that fund to the business of the company as an investment
rather than expenditure. Changes are the part of every business if the reason of such changes is of
the nature that existing directors cannot remove then in such as situation, this is advised to
introduce a professional person in the management of the company. Management is a core of
every business, by introducing a person that has enough knowledge of the change; the client can
save his company from the financial difficulty. If present directors are not capable to meet out
the expectations of the business, the company can approach to an external advisor who has
experience in this sector.

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In the given situation, the client has asked for advice that how to conduct in a situation of
financial difficulty, then being a legal advisor, this is to mention that restructuring is another
option that client can use. Restructuring can be internal as well as external (Surbhi, 2017). Under
the internal restructuring, the company will change it is policies and procedures or can shuffle
the employees from one department according to their qualifications, skills, and efficiency. On
the other part, in external restructuring, the company can be merged with another company or
can take over some another small company according to financial capability. Restricting works
well in case of sick companies. Further, as a part of the internal restructuring, changes under
plans and policies is also a good option for the client. In addition to this, as an option, the client
cans also changes it is business activities if the current activities do not remain profitable
anymore. Addition or reduction in the current activities can bring a positive impact on the
business of the client.
This is to state that financial difficulty is a casual situation but if remain continues then the same
can become the cause of winding up or liquidation. In order to provide advice on the asked
concern, legal advice is to take any one or more than one reasonable steps. According to ASIC
also by taking aforesaid steps management of the company can save their companies from the
financial difficulty as well as further circumstances such as liquidation (ASIC, 2018c).
Question 6
Before a few years when the client was facing financial difficulties, advice has given him to
come out from such difficulty. As now, the same became fails to overcome from such a situation;
the same has asked the advice on the subject termed “Liquidation” of the company. The

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company is likely to warp up it is business and seeking advice on the closure procedure. In order
to provide the reply of the asked query, this is to state that section 513b of Corporations Act,
2001 contained the provisions related to voluntary winding up (Australia, 2011). According to
this section, by passing a special resolution, a company can commence the procedure related to
voluntary winding up. There is a difference between winding up and liquidation of the company.
Under Winding up, the company ends up it is business affairs and this is a process of before
liquidation. Under liquidation, the official liquidator of the company sell off the company’s
assets and use the received consideration to pay out the outstanding liability of the balance sheet
(Dissolve, 2018).
The meaning is mentioned here because being the part of the management; the client cannot have
expertise knowledge of this area. The client has mentioned that the same becomes financially
failed but has not mentioned that the company becomes insolvent. Therefore, directors of the
company are first advised to make a declaration of solvency under form 520 (expresscompany,
2018). The said form is required to be submitted to ASIC. Afterward, the company will call a
meeting of shareholders in that shareholders of the company will pass a special resolution to
approve winding up of the company. The client is also advised to appoint a liquidator to handle
and supervise the procedure of liquidation of the company.
The procedure of liquidation is a very significant act to do on the part of directors and as well
liquidator of the company. Notice of aforesaid special resolution is required to publish on the
official website of ASIC (Legalvision, 2016). The purpose behind such publication is this that all
the stakeholders of the company would come into knowledge about the liquidation procedure.
Once the client will appoint a liquidator to for the winding up his company, the role of liquidator
will come into light. Under Corporations act, 2001, duties of the liquidator are also defined and

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liquidator of every company is required to perform such duties. In the process of liquidation, the
liquidator will check the debts and assets of the company and pay out the debts according to the
prescribed procedure by Law. Selling off assets and payment of debt is a work of liquidator, the
client needs to check that whether the liquidator is working lawfully or not.
Since, during the liquidation process, the company remains in existence, hence the duties and
liabilities of directors will also be there. This is to advice to the client to not to depend on
liquidator fully. The liquidator has it is separate duties and a director cannot escape from his/her
liability merely cause of liquidator’s existence. Until unless, Authority will not give the
certificate of wound up status the company, the client being the part of management will be held
liable for all the affairs outside of the boundaries of given powers, hence care is required on the
part of the client even during the process of liquidation.

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References
ASIC. (2018a) Lodgement of financial reports. [online] Available from:
https://asic.gov.au/regulatory-resources/financial-reporting-and-audit/preparers-of-financial-
reports/lodgement-of-financial-reports/ [Accessed on 07/08/18]
ASIC. (2018b) Minimum officeholders. [online] Available from: https://asic.gov.au/for-
business/registering-a-company/steps-to-register-a-company/minimum-officeholders/ [Accessed
on 07/08/18]
ASIC. (2018c) Directors - What to do if company in financial difficulty. [online] Available from:
https://asic.gov.au/regulatory-resources/insolvency/insolvency-for-directors/directors-what-to-
do-if-company-in-financial-difficulty/ [Accessed on 07/08/18]
Austlii. (2018) CORPORATIONS ACT 2001 - SECT 206C. [online] Available from:
http://classic.austlii.edu.au/au/legis/cth/num_act/ca2001172/s206c.html [Accessed on 07/08/18]
Australia. (2011) Australian Corporations & Securities Legislation 2011: Corporations Act
2001, ASIC Act 2001, related regulations. North Ryde, N.S.W. : CCH Australia Limited.
Australian Business Register. (2018) Changing your business structure. [online] Available from:
https://abr.gov.au/For-Business,-Super-funds---Charities/Updating-or-cancelling-your-ABN/
Changing-your-business-structure/ [Accessed on 04/08/18]
Businessdebtline. (2018) Business status. [online] Available from:
https://www.businessdebtline.org/EW/steps/Pages/Getting_started_5_business_status_limited_co
mpanies.aspx [Accessed on 07/08/18]

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Corporations Act, 2001 (Cth).
Dagwell, R.,Wines, G., and Lambert, C. (2015) Corporate Accounting in Australia. NSW:
Pearson Higher Education AU.
Dissolve. (2018) What is Liquidation? [online] Available
from:https://www.dissolve.com.au/definitions/liquidation/ [Accessed on 07/08/18]
DLA Paper. (2018) Corporate. [online] Available from:
https://www.dlapiperintelligence.com/goingglobal/corporate/index.html?t=09-board-meeting-
requirements&c=AU [Accessed on 06/08/18]
Expresscompany. (2018) What is the procedure for Winding Up a Solvent company [online]
Available from: https://www.expresscompany.com.au/what-is-the-procedure-for-winding-up-a-
solvent-company [Accessed on 07/08/18]
Featherby, J. (2011) Global Business and Human Rights: Jurisdictional Comparisons. London :
European Lawyer.
Ferguson, D. (2013) Australia: The Statutory Contract. [online] Available from:
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on 07/08/18]
Kimball, K. (2018). Personal Liability for Company Directors. [online] Available from:
https://www.sajenlegal.com.au/news/business-law/personal-liability-for-company-directors/
[Accessed on 07/08/18]

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law-right. (2018). The separation between ownership and control in companies: a key to
success? [online] Available from: http://www.law-right.com/the-separation-between-ownership-
and-control-in-companies/ [Accessed on 07/08/18]
Legal Services Commission of South Australia. (2018) General Duties of Directors -
Corporations Act 2001 (Cth) [online] Available from:
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Legalvision. (2016) How do I wind up my company. [online] Available from:
https://legalvision.com.au/how-do-i-wind-up-my-company/ [Accessed on 07/08/18]
Salomon v A Salomon & Co Ltd [1896] UKHL 1, [1897] AC 22
Surbhi, S. (2017) Difference Between Internal and External Reconstruction. [online] Available
from: https://keydifferences.com/difference-between-internal-and-external-reconstruction.html
[Accessed on 07/08/18]