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Minh Nguyen A1642616

COMMERCIAL LAW II – Semester 1, 2019 Take – Home Class Test

QUESTION 1: Advantages and disadvantages of a corporation and a partnership in this context. Partnership: *Advantages: 

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Brad and two of his friends may not be able to establish a consultancy alone. However, partnership will enable Brad and his friends to combine their financial assets and skills to set up and run their business. A partnership is not a separate legal entity and is not taxed separately for income tax. Since his friends will continue to work their own jobs outside this business, they are not going to be taxed twice if they have shares in a partnership. Partnership is not subject to onerous disclosure requirements. It will be easier for Brad and his friends to keep their business affairs relatively private. Brad and friends intend to establish a consultancy. It is straightforward and much easier to start a partnership compared to a company. 1

*Disadvantages: 

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Being partners in a partnership business, Brad and his friends are severally and jointly liable for “the acts and omissions” of other partners2 as in the case Polkinghorne v Holland3. Therefore, it is very important when choosing who to be a partner. They may need to make some agreements such as important transactions and decisions have to be approved by at least two partners or all of partners. However, this may delay or make difficult for the business while other partners are not available to make approval. Since a partnership is not a separate legal entity, liabilities are unlimited. Number of partners is limited. There cannot be more than 20 partners in a partnership business. Later then, if the consultancy performs well and more partners wish to join, they will need to form a company. If the consultancy performs bad in the future and one of the partners want to step out of the partnership, it would be difficult for that person’s share to be taken over as fast as he wishes4.

Corporation: 1 Alex Wong et al, Company Law – An Interactive Approach (Wiley, 2017 Module 1: Business Organisations). 2 S5 Partnership Act 1891 (SA). 3 Polkinghorne v Holland – [1934] HCA 28 – 51 CLR 143. 4 Alex Wong et al, Company Law – An Interactive Approach (Wiley, 2017 Module 1: Business Organisations).

*Advantages:  

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Brad and his friends would be able to raise more capital if they establish a company. A company is a separate legal entity, this allows the company to enter into contracts as an individual5 as Salomon v Salomon & Co Ltd 6. The company is liable for its own liabilities, Brad and his friends have limited liabilities. Their liabilities are determined by the type of the company under s121 Corporations Acts. If one member in the company wish to transfer his ownership, this will be done easier compared to a partnership and the company will still be operating as usual regardless any changes in company members. Company tax rate is lower than the highest rate of income tax levied on individual taxpayers.

*Disadvantages:   

It is costly to establish a company due to substantial compliance costs and extensive public disclosure. Company is subjected to extensive public disclosures and more regulations. In certain circumstances, the corporate veil can be lifted7. Cases: Re Darby [1911] 8, Gilford Motor Co Ltd v Horne [1933] 9, Jones v Lipman [1962] 10.

Brad and his friends should set up their consultancy business under a partnership form.

QUESTION 2: 5 S124, Corporations Act 2001. 6 Salomon v Salomon & Co Ltd [1897] AC 22. 7 Alex Wong et al, Company Law – An Interactive Approach (Wiley, 2017 Module 1: Business Organisations). 8 Re Darby [1911] 1 KB 95. 9 Gilford Motor Co Ltd v Horne [1933] Ch 935. 10 Jones v Lipman [1962] 1 All ER 442.

a. Booleroo Sausages Pty Ltd could be taken over by Anne and Scott to save them forming a new company. Firstly, Anne need to be appointed as a director. 

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Anne can be appointed as a director by Booleroo Sausages Pty Ltd by a resolution passed in company general meeting11. Or Mary and Alvin can appoint only their daughter, Anne as a director12. Booleroo Sausages Pty Ltd must confirm the appointment by resolution within 2 months after the appointment is made13. Booleroo Sausages Pty Ltd must notify ASIC within 28 days when Anne is appointed as a director14.

Secondly, Anne needs to change the company constitution. 

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The clause “The purpose of Booleroo Sausages Pty Ltd is to sell lamb and beef sausages” can be changed to “the purpose of Booleroo Sausages Pty Ltd is to sell non-meat protein foods” by special resolution, which is passed by 75% of members who are at a general meeting and are entitled to vote.15 Mary, Alwin and Anne are the only directors and shareholders of Booleroo Sausages Pty Ltd. As long as two out of them three agree, the company constitution can be changed. “The company's constitution may provide that the special resolution does not have any effect unless a further requirement”16, “unless the constitution provides otherwise, the company may modify or repeal a further requirement”.17 Booleroo Sausages Pty Ltd must lodge a copy of the special resolution changing the constitution with ASIC within 14 days of passing the resolution. 18

b. Anna and Scott can create a new company. Process:       

Choose a company structure (proprietary or public (if public, listed or unlisted), limited by shares, limited by guarantee, unlimited or no liability. Choose a company name that suits the business and that meets ASIC’s requirements. Decide how to operate the company. Understand the legal obligations. Obtain consent from officers, members and occupiers. Apply to ASIC to register the company. Meet legal obligations regarding use of the company name, CAN and ABN. 19

QUESTION 3:

11 S201G, Corporations Acts 2001. 12 S201H (1), Corporations Acts 2001. 13 S201H (2), Corporations Acts 2001. 14 S201L, Corporations Acts 2001. 15 s136 (2), Corporations Acts 2001. 16 s136 (3), Corporations Acts 2001. 17 s136 (4), Corporations Acts 2001. 18 S136(5), Corporations Acts 2001. 19 ‘Starting a Company — How to Start a Company’, Information Sheet 61 (ASIC, Canberra, 2012).

a. Is this business a partnership? If so, who are the partners in the partnership? Issues:  Is this business a partnership?  If so, who are the partners in the partnership? Definition: “Partnership is the relation which subsists between persons carrying on a business in common with a view of profit and includes an incorporated limited partnership”20.

*Test the 4 elements of partnership definition: 1. A group of people: Trev and Wayne are two people who involved in the workshop. 2. Carrying on business: “includes any trade, occupation or profession” 21. This workshop is to restore furniture. It is ongoing in an industrial complex on the outskirts of Victor Harbour. Case: Hope v Bathurst City Council (1980)22. 3. In common: there are evidences that Trev and Wayne come into a business relationship that is “mutual, shared or reciprocated as to its rights and obligations” 23. Trev and Wayne are both doing their jobs at the workshop. Wayne, brought his own band saw, hand tools, brushes and mitre gauges. Trev and Wayne share the income from the business evenly. Wayne pays electricity, water and rent. 4. With a view to a profit: Trev and Wayne are restoring furniture for customers with the purpose of making a profit. All 4 elements of the partnership definition are satisfied. This is a partnership business between Trev and Wayne.

*Test the positive and negative rules:   

S2(1)(b): Trev and Wayne are sharing the business income, but this does not itself create a partnership24. S2(1)(c): a share of the workshop profit is prima facie evidence that Wayne is a partner25. S2(1)(c)(ii): Wayne is an employee and is paid with a share of the profit, but this does not make him a partner26.

*Test section 24 Partnership Act “Default” Rules: (especially since there was no contract between Trev and Wayne)

20 Part 2, division 1, s1(1), Partnership Acts 1891 (SA). 21 Part 1, s1B(1), Partnership Acts 1891 (SA). 22 Hope v Bathurst City Council (1980) 144 CLR 1. 23 Nickolas James, Business Law (Wiley, 3rd ed., 2014) 24 Part 2, division 1, s2(1)(b), Partnership Acts 1891 (SA). 25 Part 2, division 1, s2(1)(c), Partnership Acts 1891 (SA). 26 Part 2, division 1, s2(1)(c)(ii), Partnership Acts 1891 (SA).

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Trev and Wayne share the business profit equally. Trev has the workshop. Wayne brought his own

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band saw, hand tools, brushes and mitre gauges to work. They act like business partners27. Wayne contributes to some business expenses. Does Trev pay for other expenses28? Whether this business is a partnership or not is not clear.

b. If Wayne is a partner what is to happen with his interest now that he cannot participate? Assume Wayne is a partner in this partnership business. He is now hospitalised for several months and seem to no longer be able to work as a furniture restorer like before. Issue: what is to happen with his interest now? Since there was no contract between the two partners, “default” rules of partnership are applied.  Wayne is entitled to share the business profit and must bear any business losses with Trev29.  He is still entitled to share business expenses with Trev even when he does not work much at the workshop like before30.  Wayne can take part in in managing the business for example access business paperwork,  

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ordering supplies and equipment31. Trev cannot assign a new partner to the business without Wayne’s consent32. Ordinary matters of the workshop still needed to be decided by both Wayne and Trev since they are the only 2 partners in the partnership. Any changes to the fundamental nature of the partnership business cannot be made without the consent of Wayne33. Wayne is entitled to access or inspect the partnership book at any time34.

c. Is the partnership liable to pay for the three bandsaws ordered by Zenon? Issue: Is Zenon a partner in this partnership business? *Test the 4 elements of partnership definition: 1. A group of people: Trev and Zenon are at least 2 people involved in the business. 2. Carrying on business: yes, the business is ongoing. 3. In common: No. Trev works here as a job and with a purpose of making profit. Zenon is studying Engineering Drawing and Computer Aided Design. He only helps his father out when he has time. 4. With a view to a profit: No. as mentioned above. Zenon is not a partner in the partnership. Business according to the partnership definition35. There is no evidence to support that Zenon is a partner in this business in both Positive and Negative rules and Default Rules.

27 Part2, Division 3, s24(1)(a), Partnership Act 1891 (SA). 28 Part2, Division 3, s24(1)(b), Partnership Act 1891 (SA). 29 Part2, Division 3, s24(1)(a), Partnership Act 1891 (SA). 30 Part2, Division 3, s24(1)(b), Partnership Act 1891 (SA). 31 Part2, Division 3, s24(1)(e), Partnership Act 1891 (SA). 32 Part2, Division 3, s24(1)(g), Partnership Act 1891 (SA). 33 Part2, Division 3, s24(1)(h), Partnership Act 1891 (SA). 34 Part2, Division 3, s24(1)(i), Partnership Act 1891 (SA). 35 Part 2, division 1, s1(1), Partnership Acts 1891 (SA).

Assume Zenon is a partner in this partnership business with Trev and Wayne. Issue: Is the partnership liable to pay for the three bandsaws ordered by Zenon?  “Every partner in a firm other than an incorporated limited partnership is liable jointly with the other partners for all debts and obligations of the firm incurred while the partner is a partner” 36. Zenon, Trev and Wayne therefore are liable to pay for this order from Machinery House Pty Ltd.  Trev and Wayne are severally liable for “everything for which the firm, while the partner is a partner 

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of it, becomes liable under section 10 or 11”37. Zenon is a partner in the partnership, all partners and the firm is liable to pay for the order when “business of the kind carried on by the firm” 38 like case Polkinghorne v Holland39 and in the usual way as the case of Goldberg v Jenkins40. The order from Machinery House Pty Ltd is not binding on the business since Zenon entered the contract with no authority41. He ordered three Hafco Woodmaster W955 bandsaws without Trev and Wayne knowing. Similar case law is Collen v Wright42.

d. Issue: Who should Gladys sue? Gladys is a customer of Trev’s furniture restoring workshop43. The business supplied service to Gladys44. The Australian Consumer Law (ACL) provides consumers guarantees relating to the supply of good and services45. The firm has breached section 54 of the ACL just like the case of David Jones v Willis46. Gladys should sue the workshop where she got her couch restored. Issue: Can Wayne be included in the suit? Is Wayne a partner of this business? 1. If Wayne is not a partner in the business but only an employee, then he should not be included in the suit. 2.

If Wayne is a partner in this business, should he be included? a. Last December, Wayne suffered a brain aneurism and was hospitalised for several months. That made him no longer be able to work as a furniture restorer. Has Wayne retired from the business? If Wayne has retired before the day that Gladys went to sit on her newly restored Miner’s Couch and one end completely collapsed causing her to fall heavily and break her hip, Wayne is discharged from the suit47. However, if the incident of Gladys happened before his retirement, Wayne is jointly liable with the firm48.

36 Part 2, Division 2, s9(1), Partnership Acts 1891 (SA). 37 Part 2, Division 2, s12(1), Partnership Acts 1891 (SA). 38 Part 2, Division 1, s5(1), Partnership Acts 1891 (SA). 39 Polkinghorne v Holland [1934] HCA 28;51 CLR 143. 40 Goldberg v Jenkins1889 15VLR 36. 41 Part 2, Division 1, s5(1), Partnership Acts 1891 (SA). 42 Collen v Wright (1857) 120 ER 241. 43 S3, Australian Consumer Law. 44 S2, ACL 45 ACL, Schedule 2, Competition and Consumer Acts 2010. 46 David Jones v Willis [1934] HCA 47. 47 Part 2, Division 2, s17(3), Partnership Acts 1891 (SA). 48 Part 2, Division 2, s17(2), Partnership Acts 1891 (SA).

b. Assume Wayne did not retire despite his health condition. Wayne is included in the suit as he is "jointly liable for all debts and obligations of the firm”49. “Every partner is jointly and severally liable for any wrongful acts or omission of any partner acting in the ordinary course of business”50. Restoring the couch for Gladys is a business of the kind carried on by the workshop just as the case of Polkinghorne v Holland51 or Walker v European Electronics Pty Ltd52. It is not clear here whether Wayne is included in the suit.

Word count: 2482

DECLARATION: I have completed the academic integrity module and have completed this assignment in accordance with the academic integrity requirements of the University.

49 Part 2, Division 2, s9(1), Partnership Acts 1891 (SA). 50 Part 2, Division 2, s10 (1) and s12, Partnership Acts 1891 (SA). 51 Polkinghorne v Holland [1934] HCA 28;51 CLR 143. 52 Walker v European. Electronics Pty Ltd [1990] 23 NSWLR 1....