Acc2006 Company Law - Free Assessment Answers

Alternative Business Structures - Sole Traders, Companies, Partnerships, Trusts and Associations.
Companies and Incorporation
Company Constitution
Promoters, Outsiders' Dealing with companies and Corporate Liability
Membership, members' powers and dividends
Corporate Governance and Company Management
Introduction to Directors' and Officers' Duties
Financing a company via equity/debt, share capital transactions

I believe that, before starting a business we need to have proper information about the different types of business structure. The most common alternative business structures are:

Sole trader: It is a business structure which is operated by a sole individual. The person himself is legally responsible for the legal aspects of the business. He can employ individual under him as a help to run the business.

Companies: Company is a legal entity which is separate from its shareholders, directors and employees. A company can sue or be sued. I believe it is a complex business structure (Hannigan 2015).

Partnership: Partnership is kind of an association of two or more people. The partners have a direct share in the profit of the organisation. They are jointly and independently liable for the act of each other (Wilkinson et al. 2014).

Trusts and association: A trust is such an organisation which is an arrangement of holding property for the sake of another person. In a trust person holds income to the benefit of other person. Whereas an association is a group of people who are joined together to run a non for profit corporation.

Company and Incorporation

Company is a legal entity and separate from its owners, directors and shareholders, which needs to be incorporated under the corporation law where it is situated (Sealy and Worthington 2013). It is governed by the legislation of the Country respectively. In my view every company must be registered under the respective legislation to avail the legal safeguards, which is provided for it. Incorporation is a legal process, which is used to form a separate corporate entity (Talbot 2015). An incorporated company is effectively recognized to be a person in the eye of law. It gives the company the power to sue or be sued.

Company Constitution

Company constitution specifies the rules that governs the relationship of the company and the shareholders and their activities (McGRATH, 2014). It is a document that defines the existence of the company and regulates it. In my opinion it is important to form a company constitution to avail the features which is provided in the relevant company law. The most important clauses which should be included in the company documents are the name of the company, its objectives and nature, shares of the company, types of shares, certificates of shares, way of transferring share, method of issuing loans, terms of repayment, paying out of dividends, meeting of the Board of Directors, Quorum of meeting, number of directors and their power and duties, conflict of interest, arbitration clause and others. By passing a resolution, the constitution of company can be changed.

Promoters, Outsiders' dealing with companies and Corporate Liability

Promoter of a company is the person who persuade other person to contribute to the company a capital, before it has been incorporated. Promoters has the power to enter into a contract for the company before or after it is incorporated. It arranges the shares issued in the name of the company. Anyone doing business with the company can assume that the company has the right to conduct their business unless the person suspects or knows.

Promoters or outsiders dealing with the company has the fiduciary duty toward the company (Boonzaier 2013). They must make authentic disclosure of any kind of personal interest in the company business. They would be held liable for making any secret gain without the consent of the company. Company is entitled to sue the promoter or outsider who are dealing with the company, for causing breach to their fiduciary duty.

Membership, members' powers and dividends

In relation to a company, member is a person who has obtained membership on its registration. Their name should be enlisted in the register of members. The members of a company has the power to bring in a proceeding on behalf of his company. The member of a company has the right to ask for a copy of the resolution or document. With the authorisation of the director, the member can inspect books of the company. I consider that, companies should divided the powers of its members and separate their position from others. Members have also the power to call for a general meeting. Dividend is the payment made to shareholders. Dividends can be paid to the shareholders if the assets of the company is sufficient to exceed the liabilities before it is paid out. My opinion is that paying out of dividends is a reasonable and fair policy of the company but it should not prejudice the liability of the company towards its creditors.

Corporate Governance and Corporate Management

Corporate governance of a company means the system of rules and processes which is used to direct and control an organisation. It is the practice of balancing the interest of the shareholders, financiers, management, customers, suppliers and the government (Tricker and Tricker 2015). It deals with the ways to take effective strategically decisions.

Corporate management is the action of a company which is taken to lead the business towards a positive direction. It is the procedure of administering and directing the company (Bagautdinova, Galeeva and Kundakchyan 2013). It includes the management of company resources and their application in attaining the objective of the company. My view is that in order to achieve the goals of the company, it is required that the company should follow a corporate management system within it. I have observed that to ensure the economic growth and success of the company, a good corporate governance is a must within a company.

Introduction to Directors' and Officers' Duties

I have perceived from the different corporate rules of different countries that directors and officers have a number of duties to carry out. Directors and Officers of a company acts a manager of a corporation which includes their fiduciary to duty towards the corporation. It is required that every director and officer shall act in good faith while exercising their powers (ANDREW 2016). They will be honest at the time of discharging their duties. They should not place their interest before the interest of the company, and should not make any unreasonable gain from their position. It is the duty of the directors and officers to act with due care and diligence while exercising their powers. They should refrain from causing any harm to company which is within their knowledge. They are obligated not to misuse the funds of the corporation.

Financing a company via equity/debt, share capital transactions

Financing a company via equity is the method which is followed to raise capital by selling the shares of the company to the public or financial institutions. In this process additional shares of the common stock is issued to an investor. While, in debt finance, money is borrowed but the ownership is not given to the public, financial institution or institutional investors. It occurs when a company needs to raise money for working capital by selling debt instruments. In share capital transaction, person applies for shares after satisfying with the written terms of the prospectus which the company had issued during the initial public offerings.

Members' Remedies

It is the right of the member of a company to bring an action against the company for any oppressive conduct of the company (Shepherd and Ridley 2015). I have observed in many case laws that shareholders are often excluded from the management. In the case of Hogg v Dymock, theCourt held that breach of continuous expectation of permanent involvement can lead to oppression. Members have a remedy for any unfair conduct of the company in contrary to the interest of the members.

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Wilkinson, A., Dundon, T., Donaghey, J. and Townsend, K., 2014. Partnership, collaboration and mutual gains: evaluating context, interests and legitimacy.