a) Joint stock companies refer to business entities whose shares are purchasable by shareholders and can be sold over time. In essence, the company is owned by the cumulative number of shareholders who hold and own the shares of the company. While the history of the joint stock company dates back to early eras in China, joint stock companies within Australia had surfaced in the 1850s, albeit primarily established for mining purposes.
Corporation charters were one of the most common corporate structures in the early eras, and essentially referred to entities that were granted incorporation through royal charters. In terms of a historical context, corporation charters were prevalent in the United Kingdom, where monarchs granted ad hoc acts to establish business entities.
Corporation sole refers to a natural individual person who stands to represent an official position of authority that benefits from a separate legal entity. Historically speaking, the structure of the corporation sole predominantly came into existence through the Crown and the bishops as well as the vicars.
b) The specifications of the case study provide that Jackson and Jenna agree to enter into a partnership to run the café. However, while Jackson takes out the lease for the café and pays the costs required for setting it up, he does not take an active role in the daily affairs of the partnership. As per the provisions contained in Section 5(1) of the Partnership Act 1958 (Vic), partnership is defined as “relation which subsists between persons carrying on a business in common with a view of profit.” Furthermore, Section 6 of the statute also provides for rules that can be assistive towards determining the existence o the partnership. Section 6(1) mentions how joint tenancy does not create partnership itself, whereas Section 6(2) mentions that sharing of gross returns is not sufficient to constitute a partnership, especially in terms of when the the persons sharing do not comprise of any joint or common right or interest in the property through which the returns are derived. Furthermore, Section 6(3) mentions that the receipt of any share in the profits would constitute prima facie evidence that the person is a partner of the business.
Based on the above facts and assuming that the partnership entered into Jackson and Jenna comprised of profit sharing clauses, it could be stated there does exist a partnership.
Furthermore, the case presents that Jackson and Jenna disagree regarding the contract with Coffee Machines, which leads to Jenna walking out of the business. Subsequently, Jackson goes on to preemptively cancel the contract with Coffee Machines. He also decides to sell the café, when Jenna comes in and sues him claiming they are partners. In terms of the liability, it is mentioned in Section 21 of the Partnership Act 1958 (Vic), whereby Section 21(2) states that a partner who retires from the firm would thereby not cease to be liable for partnership debts or and other obligations that took place before the retirement. Naturally, since the contract between the partnership and Coffee Machines was entered into prior to Jenna leaving, she would still be a party to the contract despite her leaving the partnership.
Section 30 (1) of the statue mentions that partners may retire at will from the partnership, however, a written notice must be provided to all the parties involved therein. It is all the more prominent in cases that do not involve a fixed term of duration of operations. Furthermore, Section 30(2) mentions that when partnerships are constituted through deeds, a notice in writing would be sufficient for the purpose of retirement. Naturally, assuming that there was a written deed of partnership, Jenna would be required to provide a notice to Jackson regarding her retirement. If she provides it, she would no longer stand to comprise of any merit in her claim that they were partners. However, if she had not provided a notice, she still would be considered as a partner and could sue Jackson for failing to notify her regarding the sale.
Considering how Eastfarmers Ltd. at willing to issue additional shares to the public on the ASX amounting to a cumulative sum of $15 million, it would extremely important to prepare a disclosure document. Disclosure documents are essentially broad terms that are used to describe the fundraising documents as required by the ASIC for issuing securities. Based on the specifications of the case, Eastfarmers Ltd would primarily have to prepare two types of disclosure documents comprised of a prospectus and a two part simple corporate bond prospectus.
The prospectus, in terms of the contents, would include the broadest information requirements regarding the issue of the securities. However, since the issue was being done on ASX, most of the information would already be available due to the continuous reporting requirements.
The two part simple corporate bond prospectus would be required as per the provisions introduced in Corporations Amendment (Simple Corporate Bonds and Other Measures) Act 2014. The parts would include a base prospectus and an offer specific prospectus.
Section 254A of the Corporations Act 2001 allows companies to issue bonus, partly paid, preference and redeemable preference shares over time. Considering how Eastfarmers Ltd want to rank the newly issued shares with the preference shares, However, in terms of compliance, it would have to ensure that rights relating to the repayment of capital, participation in surplus assets and profits, cumulative and non-cumulative dividends, voting and the priority of the payments and dividends are set out within their constitution. Provided that the rights are absent, Eastfarmers would not be able to issue the new preference shares.
Section 257A of the Corporations Act 2001 mentions how companies can buy back their own shares. However, in terms of the legal procedure, Eastfarmers would have to ensure that the buy-back does not materially prejudice the ability of the company to pay its creditors. Considering how the shares that were to be bought back would relate to on market shares, the voting majority would be a key area of consideration. If it remains within the 10/12 limit, a 14 days’ notice period would be required in accordance to Section 257F along with cancelling the shares in accordance to Section 257H and notifying the ASIC about the cancellations as per Section 254Y. However, if it was beyond the 10/12 limit, all the aforementioned procedures would be required along with an additional ordinary resolution that would have to be passed in accordance to Section 257C.
(i) MCL could certainly remove Chris as the managing director despite Clause 6 of the constitution of the company that sates how Chris could be removed through death, retirement or misconduct. When Chris engaged in fraudulently taking the loan of $750,000, he explicitly violates the directors’ duties to maintain care and diligence in accordance to Section 180 of the Corporations Act 2001 along with Section 181, which warrants directors to act in good faith. Furthermore, Chris further violated Section 182 of the statute, which states that directors must not improperly use their position. However, Chris took advantage of his position as the director and took on a loan of $750,000, even going on to forge Betty, the company secretary’s signature. However, as pert Clause 12 of the company constitution, MCL could only borrow sums above $500,000 with prior approval of the Board.
(ii) Based on the specifications of the case study and the clauses provided from the constitution of MCL, Cash Bank Ltd would not be able to enforce the loan contract against Mega Co Ltd. clause 12 of the constitution clearly mentions that any sum above the figure of $500,000 would require the approval of the board. However, Chris had taken advantage of his friendly relations with Albert and managed to obtain the loan anyway due to the friendly relations they shared. While it has been provided that Chris and Albert are childhood friends, it would fall under the duty of Albert to verify whether the approval of the board was obtained or not. Furthermore, Chris had also apparently forged the signature of Betty, the company secretary, which should also have been verified by Cash Bank. The loan taken by Chris was also for his personal business purposes, which further limits the merit for enforcing the loan against MCL although it was taken in the name of the company.
The Corporations Act 2001 and numerous precedents have often held the director personally liable for breaching his or her duties and inflicting loss upon the company. Chris had explicitly violated the duties of a director to exercise diligence, act in good faith, disclose information and act for fit purpose. Chris had also engaged in fraudulent behaviour, whereby definite clauses within the constitution of the company were violated and disregarded. Naturally, Chris would entail complete liability towards the sum of $750,000 taken in the name of MCL in a fraudulent manner for his personal business use. Moreover, the board did not approve the loan nor were they notified about it, which automatically limit the merit of Cash Bank’s attempt to enforce the loan contract against Mega Co Ltd. Chris would potentially face criminal as well as civil charges in this regard. Cash Bank would certainly be able to enforce their loan contract against Chris, who fraudulently represented MCL and took up the loan in the name of the company.
a) The board of Waldo certainly has the power to issue the bonus share, although it would be required that the repayment, dividend, participation in surplus assets and profits and others are firmly defined within their constitution. Failing to do so would prohibit the issuance of any bonus shares to the common public. Moving on to the question of whether the shareholders could compel the directors to not issue the share at the upcoming AGM, a 50% majority vote would be required.
b) The shareholders could certainly stop the directors from increasing and paying the proposed dividend as it would be commercially unwise to do so. While shareholders own limited powers over the positional authority and the functions of directors, shareholders may prevent directors’ actions at a general meeting, albeit with a 50% and up majority. It also becomes binding on the directors in case a majority shareholder vote or resolution is passed, and the decision must be altered in accordance to the vote passed.
c) The two strike rule is predominantly aimed at holding the directors accountable to the shareholders for executive salaries, bonuses and other payments. Considering that the shareholders vote against the remuneration report and manage to achieve the second strike, the consequence of Waldo Ltd and its director would largely lie on the fate of the vote o the shareholders in terms of whether the directors would need to stand for re-election. Often referred to as the spill resolution, if 50% or more of the eligible votes are cast, the spill meeting ensues where the reelection process takes place.
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