Corporations Law Assignment: Incorporation and Registration

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Corporations law – assignment
questions
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Table of Contents
Question 1..................................................................................................................................3
Applicable law.......................................................................................................................3
The process to be followed for the incorporation and registration of the new company.......3
Advantages to Michael and his sons on incorporation and registration of the company.......4
Disadvantages to Michael and his sons on incorporation and registration of the company. .5
Controlling father-son rivalry................................................................................................5
Advisory statement.................................................................................................................6
Question 2..................................................................................................................................7
Offer and acceptance as per the given facts...........................................................................7
Advisory statement.................................................................................................................8
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Question 1
Michael a restaurant owner has recently owned another restaurant in Blacktown apart from
one he already had in the Paramatta street. He is a sole trader in this industry from past 30
years. His sons Adam and John have also decided to join their father and continue their
family business with some modification. The proposed modification is the change in the
nature of the business in a company structure rather than sole ownership. They are also
foreseeing the tax exemptions they can avail. The preferred name for the business is “Sicilian
Treats”.
Applicable law
The restaurant business of Michael under the sole ownership is subjected to the Corporations
Act 2001. The Corporations Act 2001 is the regulatory statute for all the business enterprises
and organisations which are operating in Australia. The registration of Michael's new
company shall also be done as per the provisions mentioned for the registration process in the
Corporations Act 2001. The proposed name for Michael’s new business structure as a
company shall also be subjected to the applicable provisions of the Corporations Act 2001.
The process to be followed for the incorporation and registration of the new company
Part 2A.2 of Chapter 2A of the Corporations Act 2001 under Section 117 provides the
process to be followed by for the registration of the new company.1 Hence, the process which
is required to be followed by Michael and his sons is as follows:
1. Application for registration:
To begin the registration process, the owners are required to file an application with
the Australian Securities and Investment Commission (ASIC) which is an
independent regulatory body for corporations.2
The application must contain:
 The type of company proposed for registration
 The name preferred for the company
 The name and personal details of each member (Michael’s sons Adam and
John)
 The name and personal details of the director (Michael)
 The address of the company’s registered office
1 Corporations Act 2001, Chapter 2A, Part 2A.2, s 117.
2 Corporations Act 2001, s 117 Clause (1).
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 In case the company is limited by share, it shall also mention the number and
class of share Michael and his sons take up in writing.3
The filed application must be in the prescribed form.4
The application must have consent and agreement that is the signature of each
member.5
2. After the application is filed the ASIC shall provide the company with:
 Australian Company Number (ACN) for the new company
 Shall register the company in the proposed name “Sicilian Treat” subject to
Section 147 of the Corporations Act 2001.
 Issue the registration certificate stating:
 Name
 Type
 CAN
 Consent that the company is registered under this Act
 The date of registration6
Hence, Michael and his sons are required to undergo the prescribed process as mentioned in
the provisions of the Corporations Act 2001, in order to get their new company registered.
Advantages to Michael and his sons on incorporation and registration of the company
Section 119 to 127 of the Corporations Act 2001 provides provision for the advantages and
benefits which an incorporated company shall enjoy after getting its name registered under
the Act.7 Hence, the new company of Michael and his son shall also be entitled to the benefits
which they can avail after registration.
The following are the benefits of a registered company under the Act:
1. Existence of the company:
 The company when registered comes into existence as a corporate body right from
the day of its registration and remains in this title unless it is unregistered under
this Act of 2001.8
2. Directors and members of the company:
3 Corporations Act 2001, s 117 Clause (2).
4 Corporations Act 2001, s 117 Clause (4).
5 Corporations Act 2001, s 117 Clause (5).
6 Corporations Act 2001, s 118 Clause (1).
7 Corporations Act 2001, s 119.
8 Corporations Act 2001, s 119.
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 After the registration of the company, Michael shall become the director of the
company enjoying all rights of the directors and managing the company's affairs.
 Michael sons Adam and John shall become members of the company as their
names are prescribed in this sense at the time of registration.9
3. Common seal:
 The company on registration is entitled to have a common seal which can be used
by the company at the time of executing the contracts in the company's name as
signature.
 This gives the company a separate legal entity different from its director and
members.10
4. Exemption from tax:
 The company when registered shall be subject to a flat tax rate of 30%.
 The companies having their annual turnover of less than $10 million shall be
subjected to a reduced tax rate of 27.5%.
 Hence, the company established by Michael and his sons can also avail the tax
benefits as prescribed under the Act.11
The following are the powers which the company shall enjoy after getting its name registered
under the Corporations Act 2001:
1. The company shall have all the powers of the body corporate and can issue as well as
cancel shares in the company.12
2. Issue debentures13
3. The company can give opinions regarding unused shares.14
4. The company may carry on the distribution of property among members.15
5. The company can exercise all the powers conferred upon it under this Act.16
Disadvantages to Michael and his sons on incorporation and registration of the company
Along with advantages the company may have certain disadvantages to be faced on its
registration. Michael and his sons Adam and John may undergo certain liabilities of paying
debts and interest in case the company is unable to pay.
9 Corporations Act 2001, s 120.
10 Corporations Act 2001, s 123.
11 Income Tax assessment Act of 1936.
12 Corporations Act 2001, s 124 Clause (1a).
13 Corporations Act 2001, s 124 Clause (1b).
14 Corporations Act 2001, s 124 Clause (1c).
15 Corporations Act 2001, s 124 Clause (1d).
16 Corporations Act 2001, s 124 Clause (1h).
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The following are the disadvantages of getting a company registered:
1. Costly investment:
 Presently Michael is owing to a small restaurant business which is operating well
and generate enough profits.
 The conversion of the business to a company may be costly for Michael and his
sons.
 Further, a company is expensive to maintain.
2. Personal liability:
 In case if the family company registered under the Act is unable to settle its debts,
the directors and members may be held personally liable to pay the debt.
 Hence, in cases of failure of payments by the Sicilian Treat, Michael and his sons
shall be held liable to settle to debts.17
Controlling father-son rivalry
Michael shall be appointed as director of the new company “Sicilian Treat” and hence, it
shall not be possible to push him out of the family business as he is conferred with powers as
a director under the Corporations Act 2001.
Section 198A of the Corporations Act confer powers over the directors in the company.18 The
section provides for the following powers as a director:
 The complete management and business of the company are under the direction of
the director.19
 The director also has special powers which include:
o Issue shares and debentures20
o Borrow money in company’s name21
o Power to sign and endorse and execute negotiable instrument and other
valuable security like cheques.22
Advisory statement
Hence, it is advised that the registration of the new company shall enjoy enormous benefits
once it is incorporated and registered. The company shall have a separate legal entity and
17 Corporations Act 2001, s 588M.
18 Corporations Act 2001, s 198A.
19 Corporations Act 2001, s 198A.
20 Corporations Act 2001, s 198E.
21 Corporations Act 2001, s 198E.
22 Corporations Act 2001, s 198E.
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perpetual succession apart from its members and director. Michael shall enjoy the powers of
the director in carrying on the company's business and his sons shall enjoy as members of the
company under the Act.
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Question 2
Under the Australian Contract law, there are certain requirements to be fulfilled by the
contracting parties in order to make their contract enforceable in the court of law. These
requirements are the making and proposing of an offer and the acceptance of the offer in the
same way and under the same terms, it is made. It also requires the consideration to be paid
as a valid and reasonable amount.23
The conversation between George, the salesperson at Golden Gate Technology (GGT) and
Brenden the officer of the Poolworths Ltd is regarding the purchase of software for the
effective and efficient running of the business. The conversation is regarding a deal for the
software at a discounted rate of 15% on the total cost. George under his employment contract
is not entitled to offer a discount above 10% rate but he proceeds with the higher discount.
To determine the position of the company Poolworths Ltd, it is important to point out
whether there is the formation of a contract between the two or not. The formation of a
contract between two parties requires the fulfilment of certain essential elements. These
elements are as follows:
1. Competency of parties:
The law requires the parties to be competent to enter in the contract that is they have
attained the age of majority and they are of sound mind and are not specifically
disqualified by law to enter into contracts.
2. Legal relation:
The contracting parties shall be of an intention of establishing a legal relationship
between them and shall intend to perform their part of the contract.
3. Offer and acceptance:
The party to contract is required to make an offer which shall be accepted by the other
party. The party offering is the offeror whereas the party accepting is the offeree.
4. Consideration:
The contract shall also have consideration in the form of payment in the interest of
one party and the other party takes responsibility for the fulfilment of the terms for
which the consideration is prescribed.24
23 Suff, M., 2013. Essential Contract Law. Routledge-Cavendish.
24 Suff, M., 2013. Essential Contract Law. Routledge-Cavendish.
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Offer and acceptance as per the given facts
As per the facts of the case, there is a series of conversation which took place between the
two parties George, the salesman and Brenden the officer of Poolworths Ltd. As per the
conversation, it is pointed out that the offer made by George is merely an invitation to treat to
invite more offers.
Offer:
 Offer is a promise made by one party to the other which shall be accepted by the
other party in the same sense and on the same terms.25
 But as per the facts of this case, it is pointed out that here the conversation
between the salesman George and the officer of the company depicts an invitation
to treat and not the making of an offer.
 Reasons:
o Invitation to treat is different from an offer as it invites the making of the
offer and itself an offer.
o Here the offering of a discounted rate by George is an invitation to treat
which is subjected to approval from his senior manager.
o Further, the mail dropped by Brenden is another offer made to GGT
regarding the formation of the contract.26
Acceptance:
 The offer made by one party also requires an acceptance by the other party who
shall expressly consent to the offer and all the terms mentioned in the offer.
 In this case, there are a series of invitation to treat and finally, the mail dropped by
the Brenden is the offer made to GGT which is not accepted by the managers.
 Reasons:
o The offer by George is an invitation to treat and he had no authority to
offer a discount above 10%.
o The mail of Brenden is the offer made to the software company to buy the
product at a 15% discount which is not accepted by the company.
25 Fried, C., 2015. Contract as a promise: A theory of contractual obligation. Oxford University Press, USA.
26 Bix, B. and Bix, B.H., 2012. Contract Law: Rules, Theory, and Context. Cambridge University Press.
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 Hence, there is no fulfilment of the essentials of a valid contract as the offer
initially made was an invitation to treat and the offer subsequently made was not
accepted.27
The Australian contract law is based on the principles of common law and hence a landmark
judgment on an invitation to treat in the case of Harvey v. Facey28 can be taken into
consideration. In this case, it was held by the court that the invitation to treat is different from
offer and that offer requires a proper statement of terms and conditions and shall be accepted
in the same terms by the offeree.29
Another case of Erogenous v. Greek Orthodox Community of SA Inc30, the court
emphasised on the determination of the making of the offer. it held that the making of the
offer does not depend upon the intention of the offeror but on how a reasonable man would
construe it.
Hence, in the instant case, the offer made by George to buy the product does not depend upon
the intention of George to enter in the contract but it is dependent on how Brenden and his
company would construe it.
Advisory statement
Hence, it is settled that the Poolworths Ltd has not entered a valid contract that can be
enforced by the court. The conversation which took place between the company and the
salesman George depicts only the invitations to invite offers and the final offer by the
company through the mail was not accepted by the GGT. Hence, there is no legal contract
between the parties as the essentials of the contract is not fulfilled.
27 Bix, B. and Bix, B.H., 2012. Contract Law: Rules, Theory, and Context. Cambridge University Press.
28 [1893] UKPC 1, [1893] AC 552
29 Burrows, A., 2013. A casebook on contract. Bloomsbury Publishing.
30 [2002] HCA 8, (2002) 209 CLR 95
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References
 Bix, B. and Bix, B.H., 2012. Contract Law: Rules, Theory, and Context.
Cambridge University Press.
 Burrows, A., 2013. A casebook on contract. Bloomsbury Publishing.
 Corporations Act 2001, s 117, 118, 119, 120, 123, 124, 198A, 198E, 588M.
 Erogenous v. Greek Orthodox Community of SA Inc [2002] HCA 8, (2002) 209
CLR 95
 Fried, C., 2015. Contract as a promise: A theory of contractual obligation. Oxford
University Press, USA.
 Harvey v. Facey [1893] UKPC 1, [1893] AC 552
 Income Tax assessment Act of 1936.
 Suff, M., 2013. Essential Contract Law. Routledge-Cavendish.
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