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Ben and Jerry Essay

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 Ben and Jerry Essay

Question 1:

Smith v Anderson (1880) defines partnership as the relation between two persons while carrying out a business in common with a view of profit and to continue business combined for some joint object.If the partner i.e. Ben acts within the actual and ostensible authority, then Jerry will be bound by Ben’s actions. As can be seen in the scenario that the contract applied restriction upon the authority of Ben to bind any contract for the company to not to be involved into any purchases above $1,000. OfficeJerks may or may not refuse the money to return as Jerry claimed depending on the test applied to check whether Ben & Jerry’s company is liable for actions of Ben. The firm is liable to OfficeJerks if the transaction was within the scope of business carried out by the firm, transaction was effected in usual way, the outsider wasn’t known or suspected that Ben was exceeding his authority and OfficeJerks believed Ben to be a partner. If after applying the test, it is found that company is bound by the purchase contract, Ben remains liable to Jerry for having breached the partnership agreement by exceeding his actual authority. Hence, Jerry is entitled to elect either to seek indemnity from Ben or to ratify Ben’s action and adopt the partnership contract. In this whole scenario OfficeJerks can claim to be unknown with the restrictions imposed on Ben for purchasing and choose not to refund the money to Jerry. Ben can be held responsible for breach of contract by Jerry. Applying the facts of Construction Engineering (Australia) Pty Ltd v Hexyl Pty Ltd (1985), it can be concluded that Jerry holds no liability towards OfficeJerks and is not a party to the purchase contract.

Question 2:

Australian Security and Investments Commission has defined that a company has a distinct legal existence separated from its owners, managers, operators, employees and agents(Corporations Act, 2001). The members of a limited company are not liable for the company’s debts. However, directors may also be held personally liable in certain circumstances. According to Commonwealth Law 1.5.1 the directors of the company can be held liable for the debts that are incurred by the company at a time when the company fails or is unable to pay the debts that fall due. This is because of the fundamental duties of director to cease trading when the company is insolvent. Section 1.3 of Corporations Act (2001) also elaborates that the director of the company may be held liable to compensate the company for any losses incurred due to the breach of director’s duties and can also be subjected to a civil penalty. In case of property of business bought on trust, the director may also be held liable incurred by the company as a trustee. Duties described under the Corporations Act (2001)administered by ASIC holds directors liable for breaches of other laws administered by other agencies for example directors may be held responsible for certain outstanding tax obligations of the company under ATO’s director penalty regime.

Question 3:

The Corporation Act 2001 (administered by ASIC) classifies corporations according to the methods by which the liability of member is determined. The company limited by shares is the company whose capital is divided into shares and members of which are only liable to pay to the company the amount which is not paid on their shares. The company limited by shares are needed to add “limited” or “Ltd” at the end of company’s name. These companies can either be public (in which shareholders consider themselves as potential investor) or propriety (in which a there is a close relationship between shareholders and the directors).

The company limited by guarantee has no power to issue shares and does not have a share capital. Australian history is plagued by the companies limited by guarantee(Tomasic, Bottomley, & McQueen, 2002). Under company limited by guarantee, partners undertake that if the company anyhow dissolves or wound up then they will contribute a specified amount to the property of the company. Members of the company may be held liable in case of company wounding up and unable to meet up the liabilities and obligations(Tomasic, Bottomley, & McQueen, 2002). The primary source of fund in companies limited by guarantee are from outside investors because there is no share capital. ASIC requires the company limited by guarantee to include “Ltd” or “limited” at the end of the company’s name(Tomasic, Bottomley, & McQueen, 2002).

Question 4:

a)      The aim of small business guide is to help small business directors to comply with their obligations. The guide also sets out the definitions of directors, key responsibilities of directors, liabilities and obligations of directors, process of becoming a director and the method of resigning as a director(Australian Securities & Investments Commission, 2015). The information about key duties and legal obligations of directors that are set under the Companies Act 2001 is also detailed into small business director’s guide. Although it’s not a complete guide or substitute for professional advice hence relying on this guide alone isn’t recommended.

b)      Employee share plan can help in retaining employees and rewarding them for their loyalty.

c)      The maximum number of shareholders allowed for a proprietary limited company are 50 non-employee shareholders with at-least one director living in Australia(Australian Security & Investments Commission, 2015).

d)     Lookatmoi Holdings needs to add Proprietary or Pty in its name.

e)      A proprietary company is small if it satisfies two of the following conditions i.e. consolidated revenue falls less than $25 million, the consolidated gross assets are less than $12.5 million or the company has less than 50 employees at the end of the financial year. The large proprietary company is the one with $25 million consolidated revenue or more, $12.5 million consolidated gross assets or more and more than 50 employees at the end of financial year.

f)       Proprietary Company can only raise equity by offering its shares or securities to existing shareholders, its employees and/or certain class of investors(SWAAB Attorneys, 2014).

g)      It is beneficial because being proprietary company it has more credibility in market place, easier to attract funds and investment, easier to sell the business or pass it on and the loss is limited to shares of ownership of the partners.(SWAAB Attorneys, 2014)

Question 5:

Every public document issued, signed or published by, or on behalf of, the company must include company letterhead with Australian Registered Body Number in legible characters, its place of origin and the liability of its members(Australian Securities & Investments Commission, 2015).

Question 6:

On basis of the facts of Kelner v Baxter (1866), a company until registered as a corporation lacks legal personality and hence cannot become directly or indirectly a party of the contract. Moreover upon corporation, it cannot ratify the contract and the person who entered into contract is held personally liable on the contract. So Christainis personally liable for the contract entered into with Anastasia. Using facts of Marblestone Industries Ltd v Fairchild (1975), Grey Enterprises Pty Ltd holds no liability towards Anastasia as she was known with the fact that the company is not in existence at the time of making contract. 

Question 7:

Quorum is the minimum number of members of a society or assembly that must be present at any of its meetings to make the meetings valid. Under Section 249T of Corporations Act 2001, the quorum for a directors’ meeting is 2 directors that must be present at all times during the meeting.

Question 8:

Under Section 180 Corporations Act 2001, directors are required to act in good faith for a proper purpose, act with due diligence and care, avoid misuse of information, avoid misuse of position and disclose certain interests.

Question 9:

Under section 231 Corporations Act 2001, a person is a member of company if they are a member of the company on the date of its incorporation, agree to become a member of the company after its registration or becomes a member of the company due to membership arising from conversion of a company from limited by guarantee to limited by shares.

Question 10:

a)      One of the four basic duties of directors stated in Section 175 of Corporations Act 2001 is to act in good faith. It means that the conduct of the directors must be in best interest of the company and it requires directors to avoid conflicts of interest while revealing and managing conflicts as they arise. Based on the facts of Queensland Mines v Hudson (1978), Sheldon didn’t act in good faith and must’ve disclosed his relationship and intentions to the board prior to the take-over. Moreover Leonard also misused information he obtained as a director of Compare the Market Ltd (share price and takeover information).

b)      Based on the facts of Bray v Ford (1896), the directors mustn’t put themselves in position where his interest and duty has conflict. So, Sheldon and Leonard may have to face penalties for breach of duty under the Corporations Act 2001. The breach of statutory duties draws penalties with range up to $200,000. Under both Corporations Act 2001 and Common Law, the directors will have to pay compensation or may be required to account for profits(Queensland Government, 2015). In higher scenario, Sheldon may have to face disqualification as a director from the office.

c)      The business judgement rule is a case law derived doctrine in which court adheres to the business judgement of corporate executives(Cockburn & Wiseman, 1996). Based on the facts of Aronson v Lewis (1984), Sheldon and Leonard are not covered up by business judgement rule and such actions of biasness, lack of independence and disinterest must be supported by tangible evidence to disassociate themselves from deriving personal financial benefits while breaching duty of act bona fide (in good faith)(Queensland Government, 2015).

Question 11:

The s588G of the Corporations Act 2001 prevents company to be involved into insolvent trading. If the director finds himself in breach of s588G of the CA2001, he may have to prove on the balance of probabilities that he had reasonable grounds to expect that the company was solvent and would remain solvent to incur debt, he had reasonable and reliable information provided by others [Manpac Industries Pty Ltd v Ceccattini (2002)], he failed to participate in the management of business due to some illness [Southern Cross Interiors Pty Ltd and Another v. Deputy Commissioner of Taxation (2001)] or/and he had taken all reasonable steps in order to prevent the company from incurring the debt. Moreover, court may also excuse the directors from allegations of breaching duty under s588G if he or she has acted honestly while discharging his/her duties.

Question 12:

The sole trader is a personally liable for all the debts and liabilities of the business. Hence, Lehmo bears all the risks and the customer can lay claim not only on his business assets but also on his personal property.

References

Aronson v Lewis(1984) 473 A 2d 805

Australian Securities & Investments Commission. (2015). For Business: ASIC. Retrieved August 16, 2015, from ASIC Guide for Small Business: http://asic.gov.au/for-business/your-business/small-business/small-business-resources/asic-guide-for-small-business-directors/

Australian Securities & Investments Commission. (2015). Registration and post registration obligations: ASIC. Retrieved August 16, 2015, from ASIC Website: http://asic.gov.au/for-business/starting-a-company/how-to-start-a-company/foreign-companies/

Australian Security & Investments Commission. (2015). Members of a Company: ASIC. Retrieved Ausgust 16, 2015, from ASIC Website: http://asic.gov.au/for-business/running-a-company/members-of-a-company/

Bray v Ford [1896] AC 44 

Cockburn, T., & Wiseman, L. (1996). Disclosure Obligations in Business Relationships. Federation Press.

Construction Engineering (Aust) Pty Ltd v Hexyl Pty Ltd [1985] HCA 13; 155 CLR 541; 58 ALR 411

Corporations Act,Commonwealth of Australia (2001). s. 1.5.1.Retreived August 16, 2015, from http://www5.austlii.edu.au/au/legis/cth/num_act/ca2001172/s1.5.1.html

Corporations Act,Commonwealth of Australia (2001). s. 1.3.Retreived August 16, 2015, from http://www.austlii.edu.au/au/legis/cth/repealed_act/cl184/sbg.html

Corporations Act,Commonwealth of Australia (2001). s. 249T.Retreived August 16, 2015, from http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s249t.html

Corporations Act,Commonwealth of Australia (2001). s. 180. Retreived August 16, 2015, from http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s180.html

Corporations Act,Commonwealth of Australia (2001). s. 588G. Retreived August 16, 2015, from http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588g.html

Kelner v Baxter(1866) LR 2 CP 174

Manpac Industries Pty Ltd v Ceccattini (2002) 20 ACLC 1304

Marblestone Industries Ltd v Fairchild [1975] 1 NZLR 529

Queensland Government. (2015). Corporations Act 2001: Policies and Codes. Retrieved August 16, 2015, from Queensland Government Website: http://www.premiers.qld.gov.au/publications/categories/policies-and-codes/handbooks/welcome-aboard/member-duties/corp-act-2001-c.aspx

Queensland Mines Ltd v Hudson (1978) 18 ALR 1

Smith vs. Anderson [1880] 15 Ch D 247

Southern Cross Interiors Pty Ltd (in liq) v Deputy Commissioner of Taxation (2001) 39 ACSR 305

 

SWAAB Attorneys. (2014). A Courtesy Guide Prepared By SWAAB Attorneys. Retrieved Ausgust 16, 2015, from SWAAB Attorneys: http://www.swaab.com.au/expertise/corporate/raising-money-for-companies/

Tomasic, R., Bottomley, S. B., & McQueen, R. (2002). Corporations Law in Australia. Federation Press.

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