BAFI5223C Apply legal principles in corporations and trusts law National Code FNSTPB501A Written Assignment for Semester 1, 2016 This assessment is a series of case studies (covering the topics listed below) where you will need to provide advice to business clients by answering ALL questions. The written assignment is to be completed individually and submitted online via Blackboard by Monday 23 May 2016 at 12.30pm. Assessment Task Assessment topics: □ Choosing a Business Structure □ The Company – A Separate Legal Entity: Nature, Regulation and Registration □ Management □ Directors’ Duties □ Share Capital and Fundraising □ External Administration of Companies □ Associations □ Trusts Elements and Performance criteria: 1.1 Research corporation and trusts law and related legislation, regulation and practice. 1.2 Identify different types of corporations and trust law transactions and clearly outline their legal context, establishment procedures and purpose. 1.3 Identify relevant legal principles applying to corporations and trusts matters. 2.1 Identify areas of risk in the application of law in corporations and trusts matters. 2.2 Analyse how legal issues can impact on different types of business structures. 2.3 Evaluate the relevance and implication of risks for the structure, operation and performance of different types of business structures. 2.4 Assess the ways in which risk mitigation is addressed in the formation and operation of different types of business structures. 3.1 Collect and collate available information for analysis. 3.2 Interpret, analyse and process available information to obtain required knowledge. 3.3 Seek advice and guidance of specialist expertise where required to interpret, analyse and synthesise. 3.4 Provide advice based upon identified facts and relevant law. 4.1 Relevant legal sources are reviewed regularly and any changes applied in daily 4.2 Systems for keeping up with changes and maintaining up-to-date knowledge about relevant aspects of commercial and property law are put in place and used Resources allowed: Open book – notes, handouts, study guides, text books, websites Instructions: This assessment is unsupervised. Read the questions carefully, plan your answers and answer what the question actually asks. Be thorough. Address all relevant issues in each question. Remember to include specific references to the provisions of legislation and cases upon which you are relying to explain and support your conclusions. You must always correctly acknowledge any sources to which you have referred. ASSIGNMENT QUESTIONS You have recently been employed by GroWealth Accountants and Business Advisors (the firm). In the course of your employment you are asked to assist in gathering and applying information to provide advice to accounting and business clients. Question One George Banks, an architect and interior designer is married to Winifred. They have two adult children, Jane 21 and Michael 19. George is discontent with his present employer and wishes to start his own architecture and interior design business. Winifred, already a partner in her own accountancy practice is happy to give George financial and emotional support in the proposed business, but does not have the time or inclination to take any active involvement in the business. Jane is keen to work full time in the business in an administrative and marketing capacity, but Michael, who is studying engineering, can only help in university vacations. George seeks the firm’s advice on whether he should set the business up as either a partnership or a proprietary limited company. In making and explaining your decision you should address all matters you consider relevant including the following: (a) The possibility of involvement in the business of any or all of the family members; (b) The minimum number of people required to establish the business structure; (c) The elements required for the creation of the business structure; and (d) Liability for the debts of the business should it fail. Question Two Albert is an experienced pastry chef. He is interested in starting and running his own business but is aware of the risks. Albert is now considering purchasing a dessert franchise, ‘Decadent Delights’. He seeks the firm’s advice on the following matters. (a) How does purchasing a franchise differ from simply starting up your own business? Include in your answer the possible advantages and disadvantages to the franchisee. (b) What information must be provided to a franchisee before the making of the franchise agreement and during the life of the franchise agreement? Question Three Mary and Burt are partners in ‘Parasol Ventures’, a business which manufactures umbrellas. The business is growing and Mary and Burt wish to obtain further capital for expansion, begin exporting their products and also reward 6 long-serving and skilled employees who are vital to the success of their business. They have decided to change their business structure to a proprietary limited company and request your advice as to the following matters: (a) How is a proprietary limited company created? (b) What information must be provided and to whom? (c) Does the company’s registered office have to be the main place of business of the company? Give reasons for your answer. (d) Can the business continue to be called ‘Parasol Ventures’? If not, what changes must be made and why? (e) What does it mean to ‘purchase a shelf company’? (f) Is an ‘A.C.N’ and a ‘corporate key’ the same thing? Give reasons for your answer. (g) How will decisions about internal governance of the company be made? (h) What registers and minutes must the company keep? (i) Mary and Burt had unlimited personal liability for the debts of the partnership. Will they also have unlimited personal liability for the debts of the company? Give reasons for your answer. (j) How may Mary and Burt use the structure of a proprietary limited company to reward employees and encourage them to remain with the business? (k) How may Mary and Burt use the structure of a proprietary limited company to raise capital to grow the business? (l) Why is a company structure beneficial for a business involved in export? Question Four Katy is an established client who has recently inherited a share portfolio in various companies from her grandmother. Katy has not owned shares before and wants advice from the firm on the following matters: (a) Katy is now the owner of 25% of the ordinary shares issued by Cherrytree Ltd, a public company listed on the ASX. Does this give Katy the right to make management decisions for the company? Give reasons for your answer. (b) What is the difference between a ‘defacto director’ and a ‘shadow director’, and between an ‘executive director’ and a ‘non-executive’ director? (c) How is a person appointed to be a director of a public company? (d) Does the chairman of the board have greater responsibility than other board members? Give reasons for your answer. (e) Do all the directors have to be present in the same room for a quorum to exist at a meeting of a board of directors? (f) How are directors’ resolutions passed at a meeting of a board of directors? (g) Katy has received notice of a general meeting of the members of Cherrytree Ltd which has been called to consider a resolution to remove 2 of the directors of the board, Ellen and James. The board itself opposes the resolution. What process is required for the resolution to remove the directors to be successful? (h) Under what circumstances may there be a calling of a members’ meeting by directors? (i) What is the process required for Cherrytree Ltd to hold an Annual General Meeting? Does Cherrytree Ltd have to hold an Annual General Meeting? Give reasons for your answer. (j) How does voting at a members’ meeting take place? Question Five Grace is an entrepreneurial aeronautical engineer who has grown her business into the publicly listed company, Ideas Made Real Ltd (the company). Grace has recently become the new chairman of the board. The board is composed of 8 non-executive directors and Will, the managing director. Grace has been reviewing some of Will’s previous decisions, and is concerned that she may have to obtain legal advice. (a) Explain the meaning of ‘material personal interest’ and how it affects the voting powers of directors in a public company. (b) What is the purpose of the ‘business judgement rule’? What conduct may exclude a director from relying on the ‘business judgement rule’? (c) One year ago, Will as managing director of the company, entered into a contract with Beyond Jets Pty Ltd (Beyond Jets) to provide them with 30 pilot consoles for $2 million. The order has been manufactured and delivered to Beyond Jets but no payment has been received. Grace has now discovered that it was very clear at the time the contract was entered into that Beyond Jets was in financial difficulties and was known in the engineering industry to be a bad credit risk. She has also discovered that Will knew this, but wanted to help Beyond Jets trade out of trouble, as Jack, the managing director of Beyond Jets is his cousin. Beyond Jets is now in liquidation and the company is still owed $2 million. (i) Has Will properly fulfilled his duties as a director of Ideas Made Real Ltd? Give reasons for your answer. If not, what duties has he breached and what are the possible consequences of his conduct? (ii) Has Jack properly fulfilled his duties as a director of Beyond Jets Ltd? Give reasons for your answer. If not, what duties has he breached and what are the possible consequences of his conduct. (d) The board of the company and the board of Aerosplat Ltd have been negotiating a merger of the two companies in strict commercial confidence. Will has told his wife and adult children that they should buy shares in Aerosplat Ltd immediately, so they can be sold for a higher price in the merger. Will does not buy any shares himself. Six months later the merger has occurred between and Will’s wife and children have made a profit of $50 000 each. Has Will properly fulfilled his duties as a director of Ideas Made Real Ltd? Give reasons for your answer. If not, what duties has he breached and what are the possible consequences of his conduct? Question Six Katy has been further researching her share portfolio and has the following further questions: (a) Why is there a general prohibition on a company buying its own shares? (b) When does a ‘rights issue’ take place? (c) What are cumulative preference shares? (d) When dealing with options, what is the meaning of the following terms? • ‘time value’ • ‘strike price’ • ‘in the money’ (e) What is a dividend re-investment plan? (f) Is it lawful to vary or cancel class rights to benefit some members at the expense of others by increasing the rights attaching to some shares but not others? (g) What is the meaning of the 10/12 limit? (h) In the case of an issue of shares for a publicly listed company there must be a prospectus. Why? What must it contain? (i) What is ‘stop order’ issued by ASIC under s739(1) of the Act? (j) What is a ‘Professional Investor Exemption’? Question Seven A partner at the firm has asked you to research and provide answers on the following matters: (a) Bob is a builder who operates his business as a sole trader. He undertook work for Abode Homes Pty Ltd 10 months ago for which he has not been paid the $80 000 he is owed. He has filed an action in court against Abode Homes Pty Ltd but has now been told the company is in receivership. Explain to Bob what this means and how it may affect his claim for payment. (b) What is a ‘deed of company arrangement’? When does it occur? (c) When does a ‘deed of company arrangement’ come to an end? (d) How may consumers or members of the public obtain information about companies under external administration? (e) Who can make an application for a company to undergo compulsory winding up because of insolvency? What steps must be followed? Question Eight Rebecca is a very successful jeweller who operates under the label Snazzy Fox. Rebecca is married with three teenage children. Her husband is not currently working but has returned to university to complete his PHD. Rebecca is considering setting up a trust and wants answers to the following questions. (a) What is the meaning of the term ‘dual ownership’ in relation to a trust? (b) What is an ‘express’ trust and what is the most common reasons for their creation? (c) What is a ‘discretionary’ trust? (d) Explain the ‘three certainties’ which are needed for a trust to exist. (e) What would be the most beneficial type of trust and trustee for Rebecca’s situation? (f) What are the main duties of a trustee?