Incorporation and Legal Issues: Business Law Report and Analysis

This report addresses two key legal questions related to business operations and corporate law. The first section analyzes the advantages and disadvantages of incorporating a business, specifically for partners seeking to expand their operations. It explores the implications of limited liability, company structure, and financing options, ultimately recommending the most suitable company type. The second section examines a legal dispute involving an employee's termination and assesses the potential for legal action against the company. It delves into the legal principle of separate legal entity, rights of members and constitutional rights, and breach of contract, providing a conclusion on the employee's ability to sue the company and the available remedies.

Contents
Solution 1.........................................................................................................................................2
Solution 2.........................................................................................................................................3
Issue.............................................................................................................................................3
Law...............................................................................................................................................3
Application and conclusion..........................................................................................................3
Reference list...................................................................................................................................4

Solution 1
The Facts reveal that a book shop is run by Nicola and May with the help of 2 employees. The
business is profitable and run through a lease premise. With the view for expansion, two books
shops are also purchased by them. Now, Nicola and May are acting as partnership initially, and
thus, now the business can be expanded if they operate as a company.
ASIC and the Corporation Act 2001 has lady down rules and procedure for the registration of a
company. As per Salomon v Salomon & Co Ltd a company is a separate legal entity in law1
which signifies that the company has its artificial presence and is capable to act like a natural
human being. The company acts are its own and the officers are held liable for the same. But,
there are few advantages and disadvantages associated with a company2.
One of advantages of a company is that there is limited liability, that is, the shareholders are held
accountable for the liability up to the value of their shares, thus, the shareholders are not liable to
the whole of the company’s debt. Further, the acts of the officers are in the name of the company
and will not held them liable for the same. A company can enter in to contracts on its own, can
pay tax, raise finance, etc. shares can be issued by the company so that money can be generated.
But, the disadvantages includes that the process of registration is very time consuming, costly
and requires lots of paper work which is very tedious job. Every company has to file annual
return and auditing and reporting of the accounts of the company is compulsory to be complying
with in order to avoid any kind of consequences3.
At this stage, Both Nicole and May has to keep in mind all the pros and cons of a company
before its incorporation. But, they have a choice to formulate either a private or a public
company.
Any company which is part of the stick exchange is a public company otherwise it is a private
company. The distinction amid the two companies is now analyzed keeping in mind the specific
requirements of Nichole and May4.
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).
4 Paul Latimer, Australian Business Law 2012, (CCH Australia Limited, 2011).

Firstly, in every public company, there must be 3 directors whereas only 1 director is required in
private company, so, since Nichole and may are only two officers who are operating the business
as a company, thus, they can only opt as private company otherwise they require one more
director if they want to operate as a public company; Secondly, Both Nichole and May wanted to
buy two book stores for the expansion and thus need money for the same. By operating as a
private company, finance can be raised by securing loan from the creditors or shares can be
issued to existing or new shareholders or finance can be secured from the company directors;
thirdly, if any of Nicole or may wish that they want to leave the business, then the same can be
done only in the company form of business because as per Salomon v Salomon & Co Ltd a
company has perpetual succession and it never does, even of all the members cease to b part of
the business. Thus, of Mat or Nichole wants to leave the company still the company remain to
continue its working; fifthly, May and Nichole can limit their liability as by operating as a
company their liability will be equivalent to the value of their shareholdings only; sixthly, May
and Nichole wants that a manager must be hired so that they can take care of the other two shops
and the appointment of the manager is easy by appointing manager they are not making him part
of the management and thus they can retain the control of the business.
Hence, May and Nichole must operate their business as a private company and thus limit their
liability and can also higher manager and can easily raise finance from the market.
Solution 2
Issue
Can Clare sue Zio Pty Ltd, if yes, then, what are the remedies available??
Law
The solution analysis an important question, that is, whether an employee can sue the company if
his is removed from the post of the solicitor?
As per Salomon v Salomon & Co Ltd a company is a separate legal entity in law5 which signifies
that the company has its artificial presence and is capable to act like a natural human being.
Section 124 retreats the separate legal entity principle. The law recognizes the company officers
as distinct from the company.
5 Salomon v Salomon & Co Ltd [1897].

Now, every company requires guiding force for it working and thus as per section 141,
replaceable rules can be followed OR constitution can be framed OR the company can be run by
both. As per section 140 of the Act, when a constitution is adopted, then, a contractual
relationship is formed amid the members and the constitution. The rights amid the members and
the company are enforceable, but, a member can only sue the company provided his member
right is violated and is held in Hickman v Kent or Romney Marsh Sheep-Breeders Association6.
If the rights of the member are not violated, section 140 of the Corporation Act 2001 is not
applicable.7.8
Application and conclusion
Zio Pty Ltd was incorporated in 2015 and adopted a constitution. Max and Angus are its
directors/shareholders. Clare is the wife of Max and is appointed company solicitor. Later Clare
services are terminated.
Now, Clare cannot sue under section 140 of the Act as the termination of Clare service does not
hamper any of his rights as members. The termination is only a contract breach and thus such
termination is not the violation of section 140 of the act.
So, Clare cannot sue the company for the non compliance of the provision of the constitution,
but, can sue the company in court for breach of contract.
6 Hickman v Kent or Romney Marsh Sheep-Breeders Association [1915] 1 Ch 881.
7 Eley v Positive Government Security Life Assurance (1875).
8 Julie Cassidy, Concise Corporations Law, (Federation Press, 2006).

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].