University Company Law Assignment: Case Study Analysis

This document provides a detailed analysis of a Company Law assignment, addressing two key issues through case studies. The first question examines whether Martha can establish and control a company, referencing the Corporations Act 2001 and the principle of separate legal entity as established in Salomon v A Salomon and Co Ltd [1897] AC 22. The analysis considers the formation of a company, the roles of directors and shareholders, and the implications of corporate liability. The second question explores whether Gus breached his employment contract with Acme Car Co Pyt Ltd by joining Martha's company, focusing on the concept of restraint of trade and its application, including the case of Clarke v Dunraven [1897] AC 59. The document concludes that Martha can form and control a company and that Gus did not breach his contract, providing a comprehensive overview of the legal principles involved.

Running head: COMPANY LAW
Company Law
Name of the Student
Name of the University
Author note

1COMPANY LAW
Question a:
Issue:
The issue of this case is whether a company can be established by Martha and controlled.
Rule:
The legislation of the Corporations Act 2001, lays down the principle of separate legal entity.
This relates to a situation where the members of a company or an undertaking are differentiated
from the company itself. The case of Salomon v A Salomon and Co Ltd [1897] AC 22 further
discusses the concept of separate legal entity. A company is known as an artificial person and
hence it has the power to sue and be sued. The issue of the mentioned case dealt with a scenario
where the a sole proprietorship business was formed by him and thereafter a company
constituting of other members. However, the company failed and was liquidated and he was held
liable. In such a situation, corporate veil will be applied since the company is an artificial person
and separated from its directors, members and shareholders. In this matter Salmon was the
principal and was therefore held liable for the debt personally. Thus, the liquidator had over
looked the matter of separate legal personality of Salomon Ltd from the debts of the company. A
company is formed based on the provisions of the legislation mentioned above. As per the act, a
company cannot be created or formed without the name clause, memorandum of association and
article of association. Therefore, the directors will not be held liable in these circumstances when
the company is liable. The directors and shareholders have their separate obligations and rights
and the company has separate. There are different types of companies that can be formed. Sole
proprietorship is a common type of company that

2COMPANY LAW
Application:
The scenario and facts of the case discusses the situation wife of Gus had formed a company of
sole proprietorship by making Gus the only employee. Martha, his wife was the only director of
the company. By following the relevant provisions of the above mentioned act, the company was
formed and it was treated to be distinctive from the members engaged with the company.
However, if the company is held liable, then the director and employee that is Martha and Gus
will not be responsible for the losses incurred by the company. If Martha wants to create a new
company then she must follow the registration process as per the Corporations Act, 2001. For
fulfilling the registration, Martha must include the object clause, capital clause, name clause,
memorandum of association and articles of association. Therefore, Martha being the sole
proprietor should determine as to how her company will work and who she wants to hire as
employees.
Conclusion:
Lastly, it can be concluded stating that Martha can form a company and control it being the sole
trader.
Question b
Issue:
In this scenario, the issue is whether the original contract is breached by Gus and if the argument
of Acme will have an effect on the contract.

3COMPANY LAW
Rule:
When an agreement is formed or created by an individual, he is said to be restrained from
exercising the activities of the business of any kind is usually considered to be void as mentioned
in the Australian Contract Law. Clarke v Dunraven [1897] AC 59 illustrated that an employer
will not be able to produce any kind of restraint on the employee who is working for him.
However, such a situation arises in those certain circumstances when he considers the other party
to be his competitor in the market. There are a few specific exceptions in this scenario as well. If
all the partners work collectively based on the anticipation can dissolve the company only if it is
situated within the local limits. Thereafter, when an individual sells goodwill, an organization
can agree with the buyer from prohibiting on exercising the similar kind of business within the
local limits. Another exception as mentioned in the said act states that the partners of a business
can execute based on agreeing and disagreeing if any employee or member of the company
wants to carry on the business separately. The concept of restraint of trade arises in such
situations where an individual is asked to not carry on the business. Thereafter, Gilford Motors V
Horne discusses the concept of corporate veil that arises within the directors and members of the
company. Generally, when a contract is created between two or more parties and it is based on
fraudulent activities then the persons engaged with the undertaking will not be allowed to take
shelter behind the company’s personality. The company cannot be blamed in such situations
since it is considered to be not ethical. In these cases, the corporate veil needs to be lifted by the
directors of the company mainly if there has been involvement of fraudulent activities.
Therefore, in the latter situation and as per the Corporations Act, the principle of corporate veil
arises between the members and the company.

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Application:
As per the facts of the case study, it can be said that Gus was the employee of Acme Car Co Pyt
Ltd. and hence a contract of employer and employee was created between them. The contract,
which was formed between them stated that Gus is not allowed to work or carry on any similar
kind of business within the limit of 20kms. Thereafter, there was an argument between the
employer and the employee Gus left the said company and joined the company which his wife
Martha had formed. Hence, in this situation, it is significant enough to mention here that the
company of Martha was not within the radius of 20kms. Therefore, there was no breach of
contract between the Gus and Acme Car Co Pyt Ltd. In such a situation, restraint of trade will be
applicable by Gus if he is accused of breaching the contract. The case of Clarke v Dunraven can
be referred in such scenario.
Conclusion:
It can therefore be stated by concluding that there was no breach of contract committed by Gus
and thus he can be an employee of MyCar Co Pyt Ltd.

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References:
Australian Contract Law
Corporations Act, 2001
Clarke v Dunraven [1897] AC 59
Gilford Motors V Horne
Salomon v A Salomon and Co Ltd [1897] AC 22