Thomas More Law School: LEGL 201 Company Law Assignment Solution

This assignment solution addresses a company law problem involving a partnership looking to expand their business. The solution explores the advantages and disadvantages of incorporating the business, considering factors like limited liability, separate legal entity status, and fundraising options. It analyzes the suitability of private versus public companies for the given scenario, considering the number of directors required, funding needs, and management structure. The solution also examines a second issue related to the rights of a solicitor in a company, analyzing the application of company law principles, including section 124 and 140, regarding the constitution and member's rights. The solution includes case law and references to relevant legislation, providing a comprehensive understanding of the legal concepts involved.

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Contents
Solution 1....................................................................................................................................................2
Solution 2....................................................................................................................................................4
Issue........................................................................................................................................................4
Law..........................................................................................................................................................4
Application..............................................................................................................................................4
Reference list...............................................................................................................................................5

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Solution 1
As per the facts ,
Mary and Nicola are partners who are running a book shop. They have employed two persons for
the business. They are operating the business through leased premises and are profitable in
nature. Now, they are intending to purchase 2 second hand book shops so that they can expand
their business.
Now, this expansion plan can be carried out by operating a company since they are already
operating by way of a partnership.
Now, a company can only be formed by registration as per the guidelines of ASIC. When a
company is registered then it is a separate legal entity and is considered as an artificial legal
person1. When a company is registered then are various pros and cons that are associated with it2.
Some of pros includes that a company liability is limited to the value of the shareholders; a
company is considered to be a separate legal entity which implies that a company is an
independent legal person in the eyes of law and has the power to enter into contract, purchase
and sell property, enter into legal proceedings, etc on its own behalf, a company can also raise
capital by issuing shares, taking creditors etc. But, some of the cons includes that the
incorporation of a company is very difficult as it requires too much of paper work, its costly and
time consuming; also, when a company is formed then the company ahs to comply with financial
and auditing reporting, meeting are to be held as per the provisions of ASIC, taxes are also
imposed on the company individually, etc3.
Now, after understanding the pros and cons of a company, it is now important to understand the
kind of company that is best suitable for them. The two major kinds of companies that prevail in
Australia are private and public. A Private company is a company which is not listed in the stock
exchange and a public company is listed on the stock exchange.
1 Salomon v Salomon & Co Ltd [1897].
2 James L. Nolan, Australia Business: The Portable Encyclopedia for Doing Business with Australia, (World Trade Press, 1996).
3 Andy Gibson and Douglas Fraser, Business Law 2014, (Pearson Higher Education AU, 11-Oct-2013)

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Now, considering the requirements of Mary and Nicola, it is private kind of company that is best
suitable for them mainly because4:
i. It is better to operate as a private company as it requires at least one director which is
not in the case of a public company which requires at least three directors. Thus, since
they are only two persons, that is, Mary and Nicola thus they cannot form a public
company and the only choice if to operate by way of a private company.
ii. In order to expand the business they need large injection of funds so that the
additional business can be purchased. Now, public finds cannot be raised since the
company is not listed in the stoic exchange. The other methods for increasing finance
is that they can seek finance from the directors of the company or they can also take
credits without selling their shares and can retain the control of the company. Also,
they can offer shares to the employees or existing shareholders of the company and
thus can easily raise finance.
iii. A manager needs to be appointed to one of the shop so that they can access the other
two shops. The company can easily appoint a manger by employing as an employee
of the company and there is no need to sell the shares of the company to him. Thus, a
manager can be appointed without giving any kind of control to the persons.
iv. If a company is formulated then the liability of both Nicola and Mary will be limited
in nature which was not present when they were operating as a partnership;
v. Further, a company is a right choice to be operated as a business because even if one
of the person decides to leave then the company still exist as a company has a
separate legal personality and it never dies which was not in the case of a partnership
as a partnership dissolves if any of the partners decides to leave the firm;
It is thus submitted that a private company is the best choice for Mary and Nicole to carry on
their business and expand the same by limiting their liability and gaining the status of a separate
legal entity.
4 Paul Latimer, Australian Business Law 2012, (CCH Australia Limited, 2011).

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Solution 2
Issue
Whether Clare has any rights and remedies that she may be entitled to against Zio?
Law
As per section 124, a company is considered to be an artificial legal person in the eyes of law and
is distinct from its officers. Also, a company can run by a constitution or by a replaceable rule or
by both. However, if a company is run by the constitution then the provisos of the constitution
must be followed. Further, as per 140, a constitution of the company binds the member of the
company with each other, the member and the constitution and vice versa. Thus, contractual
relationship exists by the incorporation of the constitution5. As per 140, if any member’s rights
are breached then such members have the power to sue the company and enforce the rights.
However, of no members rights are breached, then, such person has no right to sue the company
for the enforcement of the right6.7
Application
In 2015, a company with the name Zio Pty Ltd (Zio) was registered. The only directors and
shareholders of the company are Angus and Max. The company is run by the constitution. One
of the terms of the constitution was that Clare (wife of max) was appointed as the solicitor of the
company. However, because difficulties arose amid Clare and Max, so, the company decided to
terminate the services of Clare.
It is submitted that as per section 140 of the Act, Clare cannot bring any proceedings against the
company as the termination from the post of solicitor has not breached any of per member’s
right.
Thus she has the power to bring an action in the court of law for breach of contract.
5 Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881.
6 Eley v Positive Government Security Life Assurance (1875).
7 Julie Cassidy, Concise Corporations Law, (Federation Press, 2006).

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Reference list
Books/Articles/Journals
Cassidy, Julie Concise Corporations Law, (Federation Press, 2006).
Gibson, Andy and Fraser, Douglas, Business Law 2014, (Pearson Higher Education AU, 11-Oct-
2013)
Nolan, James , Australia Business: The Portable Encyclopedia for Doing Business with
Australia, (World Trade Press, 1996)
Latimer, Paul, Australian Business Law 2012, (CCH Australia Limited, 2011).
Case laws
Eley v Positive Government Security Life Assurance (1875).
Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881.
Salomon v Salomon & Co Ltd [1897].