Reference no: EM132374620

Legal Regulation of Business Structures Assignment -

Assessment Task - There are two (2) questions. You must submit answers to BOTH questions (including sub-questions).

PART A -

AMAZE Ltd is a small public company that specialises in landscaping hedge mazes, public gardens, theme parks, and personal estates all over Australia. AMAZE Ltd is one of the few companies in Australia that does this type of work and therefore has a large monopoly on the sculpture and landscaping market. Even though AMAZE is a public company, it is a closely held company with only 6 shareholders as of August 2019. (Ada and Bob are directors of the company and each own 40% of the shares. Hannah, Kanak, Otto and Elle each own 5% of the shares.)

During incorporation, AMAZE Ltd created their own constitution. The provisions include:

• Rule 12: Director powers are restricted for any transaction or contract that amounts to 1 million AUD or more. Such transactions must be approved by an ordinary resolution of the shareholders.
• Rule 15: In the event that the votes of ordinary resolution of shareholders are tied, the motion does not pass and must be re-voted upon at a later meeting.
• Rule 40: Members must offer to sell their shares to other members prior to offering their shares for public sale.

As a director of AMAZE, Ada has begun negotiation with the Sunshine Botanical Gardens to provide landscaping and gardening services and to design and grow some unique lawn sculptures onsite. The contract with Sunshine Botanical Gardens will be easily worth over 1 million AUD however Bob believes that the time and expertise would be better spent in creating their own hedge maze theme park. AMAZE calls a general meeting with their shareholders to discuss and vote on the transaction.

Hannah is a 5% shareholder of AMAZE Ltd but also the CEO of AMAZE Ltd's main competitor, Hedge Fun Ltd. The strict provisions of AMAZE's constitution give her inside knowledge into AMAZE's next intended large business transactions and at times, Hannah has been able to use this knowledge to give Hedge Fun a competitive advantage. Ada and Bob are aware of this and tolerate Hannah's presence since she has such a small shareholding of 5%.

At the meeting of shareholders, Ada and Bob facilitate the voting on the transaction. Hannah, having heard that Bob is going to vote against the transaction, realises that she can prevent the transaction from going ahead if she gets one other shareholder to vote against the transaction. Hannah offers Otto $1000 AUD to vote against the transaction. Otto declines the money but says that he was intending on voting against the transaction anyway. The vote ties between for (Ada, Elle and Kanak) and against (Bob, Hannah and Otto). Due to Rule 15 of the constitution, the motion does not pass and must go to a re-vote. In the meantime, Hannah immediately calls her company and instructs them to get in touch with Sunshine Botanical Gardens to negotiate a similar contract to AMAZE's one.

AMAZE decides to re-vote on the issue after lunch. During discussions over lunch, Otto changes his mind and decides to vote for the transaction. Hannah desperately offers Elle and Kanak $1000 AUD to vote against the transaction instead to make the vote tie once more. Elle agrees to Hannah's deal. After lunch, the vote is tied once more between the votes for (Ada, Kanak, Otto) and against (Bob, Hannah, Elle) the transaction. Ada and Bob decide to close the meeting.

Following the shareholder meeting, Ada and Bob receive notice from Sunshine Botanical Gardens that the contract can no longer go ahead as they have reached a deal with Hedge Fun Ltd. Furious, Ada and Bob decide to call a Special General Meeting (SGM) and give proper notice to their shareholders of two proposed constiutional amendments.

Amendment 1: The voting rights of shareholders who own under 10% of shares are revoked for all matters.

Amendment 2: Majority shareholders may expropriate the shares of any minority shareholder who is involved in the management of a competitor company.

Two months later, at the SGM, the votes take place: Ada and Bob vote for both amendments. Elle, Otto, Kana vote against the first amendment and for the second amendment. Hannah votes against both amendments. Ada and Bob tell Hannah that in compensation for losing AMAZE Ltd the contract with Sunshine Botanical Gardens, they will only give her half of the market price for her shares. The minority shareholders are dismayed by the outcome of the SGM and come to you for advice.

1. Advise Otto, Kanak, Hannah and Elle whether the first constitutional alteration is legally valid.

2. Advise Hannah whether the second alteration to the constitution for the expropriation of their shares is valid.

Use relevant statutory provisions and common law to explain your answers.

PART B -

Kitty White loves cats and coffee. She wants to combine the two to create 'Cattuccino Ltd', a cat-friendly cafe where people can come to eat, drink and pet the adorable cats that live at the cafe. Kitty approaches her solicitor and friend, Poppy Black, for advice on registering the company, sourcing directors, issuing disclosure documents and promoting the business to potential shareholders. Poppy, for a fee, provides this information to Kitty. Genuinely excited by the idea, Poppy also gets in touch with some of her clients and friends that she believes would be interested in financing or managing Cattuccino.

Excited by Poppy's interest, Kitty negotiates a contract with Commercial Cafe Ltd for some commercial cafe equipment for use in the Cattuccino cafe. Kitty agrees that Cattuccino will -purchase four top-of-the-line machines for $20,000 AUD each from Commercial Cafe Ltd and signs on behalf of 'Cattuccino Ltd' on the signature line. The contract requires that Cattuccino Ltd ratify the contract by 1 October 2019.

Kitty tells Poppy about the purchase of the coffee machines. Poppy cannot contain her enthusiasm and says that she wants to be personally involved in the project. Kitty is delighted and appreciates Poppy's expertise.

Over the weekend, Poppy contacts her brother, Tom, who runs a business selling custom-made, handcrafted costumes for children, dolls and pets. Tom and Poppy have a longstanding agreement that Poppy will receive 20% of Tom's income in exchange for taking care of the legal and business side of his small business. Poppy asks whether Tom would be interested in creating custom food and drink themed costumes for the cats at Cattuccino. Tom believes it would be a great business opportunity and agrees to do it. Without asking Kitty, Poppy enters into a contract with Tom, signing as Cattuccino Ltd, for 20 cat costumes at $300 AUD per costume. Poppy tells Kitty about the contract with Tom but does not mention that Tom is her brother nor the involvement she has in the business. Kitty is a little surprised that Poppy would enter a contract for Cattuccino without consulting her first but ultimately agrees that it is a good idea.

On September 20, after a few weeks of organising and finding interested investors and directors, Kitty requests that Poppy finalise the registration of the company and nomination of the directors. When Poppy goes to register the company, she is shocked to find that the name 'Cattuccino Ltd' is already taken. Instead, Poppy registers the company as 'Cat Latte Ltd.' Once registered, Cat Latte receives a delivery of four commercial machines and an invoice to 'Cattuccino Ltd' for $80,000 AUD. On September 30, the new directors agree to ratify the contract however do not immediately have the full payment available as was required by the contract. They are only able to pay $50,000 AUD to Commercial Cafe.

Similarly, Tom Black sends his invoice of $6,000 AUD to 'Cattuccino Ltd' for the ongoing creation of his cat costumes. The directors do not believe that the costumes should be that expensive and refuse to ratify the contract with Tom.

Poppy and Kitty are concerned about the failure of Cat Latte to fully ratify and pay their contracts and want to know about their potential liability as it is their names on the contracts.

1. Advise Kitty about her liability under the contract with Commercial Cafe. Include any orders that may be made against her if Commercial Cafe were to pursue litigation.

2. Advise Poppy about her liability under the contract with Tom and discuss any causes of action that Cat Latte may have against Poppy.

ASSESSMENT CRITERIA - As noted in the course outline, the assessment criteria for this assessment task are:

1. Demonstration of knowledge of the law, as evidenced by accurate statement of relevant legal principles;

2. Demonstration of understanding of the law, as evidenced by cogent and coherent application of legal principles to the fact situation as stated;

3. Demonstration of requisite academic communication skills, as evidenced by logical structure of arguments, appropriateness of conclusions, accuracy of citations (legal referencing) and academic referencing and use of accurate and appropriate expression.

CONTENT AND ANALYSIS -

The focus of the assignment is on clear, accurate and concise application of the law to the fact scenario. You should make direct reference to the relevant sections of the legislation (the Corporations Act 2001 (Cth)), as well as the relevant case law (such as that discussed in the lectures and textbook). Make sure you clearly and directly answer the question that is asked. Whilst there may be a range of issues that arise on the facts, focus on the key issues required to respond to the question.

In terms of addressing the assessment criteria:

• In order to demonstrate knowledge of the law for this assignment, you need to state the relevant legal principles accurately and reference them appropriately by citing case law and legislation;
• In order to demonstrate understanding of the law, you need to apply the relevant legal principles to the facts of the case study in order to reach a conclusion;
• You need to adopt a logical structure (it is recommended you use headings), avoid spelling and grammatical errors (see further under 'Structure and Style' below) and present your arguments in a coherent and convincing manner.

The following guidelines stem from the criteria stated above:

• It is not enough to discuss the facts in a general way without reference to legal principle/s.
• It is not enough to state relevant legal principles without explicitly applying those principles to the facts.
• Statements of legal requirements/ principles must be accurate. Use of your own words is encouraged but must convey the substance (meaning of) the legal principle/s.
• Merely reproducing the facts given in the problem will not attract marks. This problem commonly occurs in written introductions, where it would appear that the writer is not sure where to start.
• Answers to each question should include an introduction, analysis which outlines and applies the relevant law to the facts and a conclusion which responds directly to the 4 question (but DO NOT simply use 'introduction', 'analysis' and 'conclusion' as your headings).

INTRODUCTION -

• The introduction to each question should contain brief statements of:
• The legal terms given to the relevant parties on the facts
• The nature of the action to be taken by the party advised
• The party who must prove the action (burden of proof)
• The relevant standard of proof
• The elements of the action requiring proof.

ANALYSIS -

• The analysis should include
• Statements of the relevant law including the elements requiring proof (from the legislation) and interpretation of those elements (from legislation and case authorities as appropriate)
• An application of the legal requirements (elements) and their interpretation to the facts in question - after correctly identifying the relevant legal issues, this is the most important aspect of your answer
• A consideration of legal remedies available to the injured party should the action be proven.

CONCLUSION -

• The conclusion should contain:
• A summary of previous discussion and conclusion as to the likelihood of proof of the action. No new material should be included in this part of an answer.
• Accurate and full reference to cases and legislation must be used (see further below).

Tutorial Questions - Australian Corporate Law, 6th ed, J. Harris, A. Hargovan and M. Adams

Trust Questions -

1. How are trusts created and what are the main purposes of discretionary trusts?

2. What is a Corporate Trustee and why would you use one?

3. What is a Unit Trust and why would you use one?

4. Outline and explain the five components of a trust.

Partnership Questions -

Download and review the relevant Partnership Act (from Queensland, Victoria or New South Wales) and review as you respond to the following questions.

1. How are partnerships created? How are they defined under the Partnership Act and what is the maximum size of a commercial partnership?

2. What is the legal definition of a partnership?

3. Explain the concept of conducting a business 'in common'.

4. Explain the relevance of profit sharing in determining the existence of a partnership.

5. Explain the concept of joint and several liability and identify instances when such liability arises under partnership law.

6. When will a firm be bound in contract by the actions of the partners?

7. Explain the concept of fiduciary duty, and its scope or duration, as applied to partnership law.

8. What effect does the death, bankruptcy or retirement of a partner have on the partnership?

9. Identify the various grounds for dissolving a partnership.

Problem Question -

Rose, Mary, Violet and Sonny are the best of mates. Rose and Mary run the Busy Bee Florist Shop in partnership with each other. Due to a long drought and unseasonal weather, the business bank account is overdrawn and the Friendly Bank is refusing to honour any more cheques. Rose approaches Violet for a loan in return for a share in the business. Violet agrees to lend the partnership $20,000 in exchange for the drawing up of a loan agreement which was to document, among other things, the following terms:

• The lender will receive a share of the profits and losses to the extent of 20 per cent.
• The lender has a right to examine the partnership books at will.
• The lender has a right to receive a quarterly business statement.
• The money advanced is a loan and the lender is not to be regarded as a partner of the business.

Rose executes the loan document, as requested, prior to Violet advancing the money. Both parties signed the loan document. Meanwhile Mary approaches Sonny, who is also their employee, for a loan.

Sonny agrees to lend $10,000 to Mary but he requires some interest on the loan. A deal is struck which results in Sonny receiving his salary plus a one-eighth share of the net profit (or a one-eighth share of the firm's losses) in consideration for making a loan to the firm.

Rose and Mary inform the Friendly Bank that Violet and Sonny are now partners in the Busy Bee Florist Shop. Business continues to decline and Rose and Mary secretly decide to take an extended holiday in the Congo Basin.

Both Violet and Sonny were unaware of the large debt owing to Friendly Bank and believed the purpose of their loans was to expand the business of the Busy Bee Florist Shop. Friendly Bank seeks to recover debts owing by the Busy Bee Florist Shop from Rose and Mary.

Advise Violet and Sonny of their potential liability to Friendly Bank in relation to the Busy Bee Florist Shop.

Attachment:- Legal Regulation of Business Assignment Files.rar