LAW2001: HealthPharm Ltd - Legal Analysis of Share Division and ASX

This case study examines the corporate law issues surrounding HealthPharm Ltd, a start-up company seeking capital for expansion. It advises Infinity Venture Capital on its investment, focusing on share classes and security. The analysis also evaluates the validity of HealthPharm's proposed share division and its disclosure obligations for an ASX listing, referencing the Corporations Act 2001 and relevant legal principles. The study covers the need for a full prospectus, disclosures related to share numbers, company structure, directors, major shareholders, and audited financial reports, offering a comprehensive legal perspective on HealthPharm's corporate actions. Desklib provides this and many other solved assignments.

Running head: CORPORATION LAW
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Corporation Law
Name:
Institution:
Date:

CORPORATION LAW 2
Question 1
Advise to infinity venture capital on its investment
Infinity venture capital is the venture capitalist in this set up. As a venture capitalist, it
demands 30% of ordinary share capital in health pharm. This is equivalent to the $20 million
that the venture capitalist is investing in the business. However, the right in ownership of the
company is classified as class A and class B shares. Class A shareholders have a right to vote
in the general meetings of the company while class be have restricted right to vote (French,
n.d.). The shareholders of health pharm will have to take the class A shares where they have a
controlling stake and the rights to vote. On the other hand, infinity venture capital will have
to settle for class B shares.
In Insolvency, class B shareholders are entitled to be paid first or ahead of ordinary
shareholders. For them to secure their $20 million, the capital ventures will have to secure it
in form of debentures or preferential shares if the company issues them. This guarantees
Infinity Venture Capital the right to be compensated fully the amount of capital that they
invested or its equivalent in form of stocks. The legal regime that governs incorporation and
listing of companies is the Australian company law. It guarantees a form of payment in case
of insolvency where debt holders, and preferential shareholders are guaranteed their
investments back ahead of ordinary shareholders (Listing a company on the ASX/Preparing a
prospectus, 2008).
Question 2.
Advise HealthPharm Ltd on the validity or otherwise of the proposed resolution as a
procedure to effect the division of the existing shares into two classes.

CORPORATION LAW 3
A company chooses to have or issue different classes of common stock to board members,
founders and investors in order to assign voting rights to one class of common stock than the
other. For HealthPharm, the purpose of giving some shares voting rights is to enable some
company insiders for example the founders a greater control over the company’s voting rights
and corporate actions. The procedure of to effect the division into two classes is valid
because it is termed as an active defense against hostile takeovers (WALMSLEY, 2017). This
may prevent Infinity Venture Capital from taking over in a hostile manner since key insiders
of HealthPharm are able to maintain control of the company with the voting rights without
owning more than half of the shares outstanding.
The division of common stock into different classes is advisable because the shares have the
same rights to ownership and profits regardless of the share class. Thus other investors still
enjoy a proportionally equal claim to the profits of the company. Existence of two classes of
shares would only be a problem if investors felt that the voting rights in Class A were
allowing inferior management to remain in place without the best interest of shareholder.
Qustion 3.
Advise HealthPharm Ltd what disclosure obligations it would have, if any, in relation to
offering its shares for issue on the ASX and advise it on the standard of disclosure
required.
According to the corporation Act 2001, a company requiring to be listed must issue a
disclosure document (Company Law, 2005). A full prospectus is also a requirement and it
contains general information on the nature of the securities of the company including the
voting rights and the classes of the common stock and any other matter that the investor is
reasonably expected to know. There are various disclosures that a company willing to be
listed has to make. First is the number of shares that the company is floating in the stock

CORPORATION LAW 4
market. Secondly, in its memorandum and articles of association, the company must disclose
the type of share that it is listing and the directors and major shareholders in the company
(Company Law, 2005). It must also disclose the audited financial reports of the company at
least for the last five years.

CORPORATION LAW 5
References
Company Law. (2005).
French, D. Mayson, French & Ryan on company law.
Listing a company on the ASX/Preparing a prospectus. (2008). Melbourne.
WALMSLEY, K. (2017). BUTTERWORTHS COMPANY LAW HANDBOOK. [S.l.]:
LEXISNEXIS UK.

CORPORATION LAW 6