Company Law Essay Example

7Company Law

Assessment 2: Company Law

Question 1

Advise fully, with reference to legal authority at common law, whether Sue can:

(a) Enforce her charge [security interest] against Bling Bling Pty Ltd; [5 marks]

Sue cannot enforce her security interest against Bling Bling Pty Limited. Under the Corporations Act 2001, for a security interest to be enforceable, it must meet the condition of being placed for the specific business. In the case of Sue, it is evident that the insurance security that she placed was not for Bling Bling Pty Limited but for Bling Bling. The insurance for the said business was also given using the personal name of Sue. Sue cannot enforce the insurance as a security interest since the business Bling Bling Pty limited does not have an insurable interest from the said insurance. Under corporate law, a business is a separate entity from the owner and has the capacity of being insured under its name1. Bling Bling Pty Limited is not insured in this case and Sue cannot enforce her security interest against the business. Additionally, the company that suffered loss is different from the one that was insured. In fact, the insured business is personal property and personal property under the Personal Property Securities Act 2009 (Cth) cannot be a security interest for another type of business that involves other shareholders2.

Section 441A of the Corporations Act 2001 stipulates that a secured party can act before when the whole or a substantial part of the whole business, property of the company under administration is subject to the security interest3. It is also evident that there are limitations to the enforcement of security interests under the Corporations Act 2001 in the sense that the owner of the security cannot enforce the security interest when a receiver or an appointment of a liquidator to the property has been done. From the scenario, it is clear that the whole of or a substantial part of Bling Bling Pty Limited is not subject to the security interest. Therefore, Sue cannot enforce security interest against Bling Bling Pty Limited.

(b) Enforce the claim against Good Luck Ltd. [5 marks]

Sue cannot also enforce the claim against Good Luck Limited as the business she insured using her name. Currently Bling Bling Pty Limited is a different business from the Bling Bling business that was insured by Sue. Bling Bling Pty Limited is not recognized by Good Luck Limited since it is not the company that was insured. Additionally, it is no longer a private company but a public company already registered under the ASIC. Under Corporations Law, a security owned cannot enforce it for a different business that was not indicated in the insurance agreement4. The right of enforcement of the secured party (Sue) requires that the property must be registered under the security interest. The new business Bling Bling Pty Limited is owned by other shareholders and therefore, it is not related to the secured one. Therefore, Sue cannot recover the value of the stolen goods from Good Luck limited. The enforcement rights are usually left to the liquidator even though in our scenario it will not apply because the security interest and the property are not related.

Question 2

Type of business recommended

The type of business structure that will best suit the needs of Amy is a partnership business and in particular a limited liability partnership. Currently, Amy is a sole trader and the amount of capital she has does not meet the amount she requires to start the new business. Amy will need a bigger business that will be able to sustain her family after she is married soon and have children. Considering her needs, the most suitable business structure will be a limited liability partnership.

Limited Liability Partnership

A limited liability partnership business is described as a business organization that comprises of two types of business owners including the limited partners as well as the general partners. It is a form of business that gives the limited partner the privileged of enjoying personal liability that is limited while the general partners are given the privilege of personal liability that is unlimited5. In a limited liability partnership, the general partners usually have the responsibility of taking full management as well as control of the business and also accept fully the partnership liabilities responsibilities personally.

Reasons for a Limited Liability Partnership

Amy should enter into a limited liability partnership because, as a partner together with the others, she will have an enjoyment of some protection against personal liability. All partners in the business will be people who are licensed under the Australian laws for the purpose of engaging in business and public accountancy practice and law. The Limited liability partnership is usually not a business that is not a separate entity from its owners for the purposes of income tax, sharing of profits as well as losses for the partners. These responsibilities are passed to all the partners and Amy will not experience many challenges that are experienced by a sole trader especially when it comes to losses. A limited liability partnership allows for all these responsibilities to e passed to all partners as well as reported on the tax returns for every partner.

In the partnership business, Amy together with the other partners will be having equal rights in managing the limited liability partnership business as per the agreement. The LLP is a business structure that is very flexible, offering a variety of control as well as structures of management that are available through the written agreement. This will give Amy the autonomy to choose the type of partner she would want to participate in the partnership business. In this type of business structure, Amy will have a better experience than in a general partnership business because every partner in the LLP is usually responsible for their actions as imposed by the law. Every partner is responsible for their acts and omissions, debts as well as liability as per the LLP agreement definition. The partners do not have personal liability far beyond their amount of investment in the partnership business6. This type of business structure also offers an advantage to Amy in the sense that she can come together with other partners and select a general/silent partner who would finance the business and they take the responsibility of running it. In such as case, they will gain funding that was not available in starting the business. They will also be protecting the assets of the general partner.

Formalities required in implementing a Limited Liability Partnership business

To start a limited liability partnership, Amy will require restructuring the current sole trade business by undertaking a number of activities. She will need to seek for partners in the business after which they will need to put a partnership agreement in writing that sets out the type of partner with their responsibilities and positions in the business. A considerable time will need to be invested to plan the project by quantifying the business requirements as part of the feasibility study7. For the legal process, the partners will need to complete a form that contains information about the partners, the proposed name of the partnership business, and the location of the LLP. They will need to meet a legal process of completing a form that contains information. The business will need to change the legal status as a LLP and customers together with suppliers notified.

References

Bennett, M, 2015, Practical Problem caused by the Personal Property Securities Act, The Tax Institute.

Corporations Act 2001

Harris, Hargovan & Adams, 2013, Australian Corporate Law, 4th ed, LexisNexis.

Kobras, S, 2010, Business Structures in Australia, Lawyers & Notaries, p.1-6.

Ward, D., & Woodruff, I, 2013, Limited Liability Partnerships, Thornton Grant, pp.1-6.

1 Harris, Hargovan & Adams, 2013, Australian Corporate Law, 4th ed, LexisNexis.

2 Bennett, M, 2015, Practical Problem caused by the Personal Property Securities Act, The Tax Institute.

3 Corporations Act 2001

4 Corporations Act 2001

5 Kobras, S, 2010, Business Structures in Australia, Lawyers & Notaries, p.1-6.

6Ward, D., & Woodruff, I, 2013, Limited Liability Partnerships, Thornton Grant, pp.1-6.

7 Ward, D., & Woodruff, I, 2013, Limited Liability Partnerships, Thornton Grant, pp.1-6.