Week 7 Seminar Questions with discussion points PDF

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MLC 203 Corporations Law Week 7 Seminar questions with discussion points

1. Larry started a clothing business several years ago called Larry’s Leisure Suits. The business is owned by a company called LLS Ltd. The business is successful and Larry wants to expand. As he needs additional capital, he wants to raise $5 million by issuing shares. One option being considered by Larry is to offer the shares to a number of institutional investors. An alternative is to float the business, that is, offer the shares to the public and apply for listing on the ASX. Larry approaches you for advice on the following matters: (a) What are the implications under Ch6D of the Corporations Act of the two fundraising options being considered? Answer: If the business is floated the Corporations Act Ch6D will apply and disclosure will be required. If Larry offers shares to institutional investors the offer may be exempt if the investors can be classed as professional investors or sophisticated investors if the minimum amount of the investment id $500,000 or the investor have net assets of $2,500,000 or gross income of $250,000 per year. [LO 10.7.2] (b) If a decision is made to carry out a float, what type of disclosure document will be required and what type of information must it contain? Answer: In accordance with Corporations Act section 705 there are five types of disclosure documents. [LO 10.7.3] (c) Can Larry advertise the fact he is raising funds? Answer: Advertising can only be conducted when and as how provided in Corporations Act section 734. [LO 10.7.4] 2. Alex and Paco recently purchased a block of land in Surfers Paradise for $1 million. They want to develop the land by building an apartment block and selling the apartments at a profit. Unfortunately, Alex and Paco don’t have the money to proceed with the development. Alex and Paco come up with a plan to develop the land whereby they will register a company called Bug Ltd. Alex, Paco and their friend Goofy will be the directors of Bug Ltd. They plan to get investors to buy shares in Bug Ltd for $2.0 million. With the proceeds of the share issuance, they will have Bug Ltd buy the land from them for $1.5 million. With the remaining $500,000, they plan to build the apartment building. If Alex and Paco proceed with their plan and register Bug Ltd, would they be required to comply with the disclosure requirements in Ch 6D of the Corporations Act (Cth) 2001 in connection with the fundraising they propose?

Module 10: Financing a company via equity or debt

Answer: This will depend on how many investors the offer is made to. To be exempt the offer must be put to no more than 20 investors and be no more than $2,00,000. [LO 10.7.2]

© John Wiley and Sons Australia, Ltd 2017

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