Corporations and Business Structures Business Clients

Question: Describe about the Corporations and Business Structures for Business Clients. Answer: Part 1: Questions with clients Answers In this part of the assignment, it is required that certain questions that should be asked to the client before providing the advice. The answers to these questions will provide the necessary information on instructions. But some of this information is essential for providing the advice, other information will also be helpful as background. For this purpose, and interview has been conducted with Mr. ___________, who runs an Indian restaurant, which was rising in Indian street food. At present he is running the business as a proprietary limited company but as he is owing to expand business, he wants advice regarding the most appropriate business structure for him. For this purpose, the following questions were asked to him. Q1: what business plan was adopted by you? Ans: the business plan adopted was to start an Indian business specializing in Indian street food., I had started a small restaurant that was being done as a private limited company. Q2: have you conducted market research before starting the business? Ans: I had done extensive market research before starting the business and realized that a good demand this prison for Indian street food. Q3: what were the main strategies adopted by you? Ans 4: In order to run the business successfully, I had always tried and tested new cuisines and products for our customers. Our strength lies in the case of our products. Moreover, we have also that the strategies to remain focused on our products, service and consumer centric. Q 5: You're running your business as a private company, are you the only main officer of the company? Ans: there are two other shareholders in the company but I am independent director of the company. Q 6: How do you divide the property losses of the company? Ans: The profits and losses of the company as well as all the investments are equally shared by all the members of the company. Q 7: In the beginning, how much capital was invested in the company? how these funds were raised and did you opt for a business loan? Ans: The business was started in 2012. In the beginning it was only a 25 seats restaurant. The initial investment in the business was made with the capital of $200,000. Out of these funds, a part came from retained earnings and for the rest of the amount, a business loan was taken. Q 8: what were the factors that have an impact on your choice of location for the restaurant? Ans: As the restaurant was going to serve Indian street food, the main target customers were the Indian community. Therefore, the area with a sizable Indian population was the most appropriate location for the restaurant. Q 9: What licenses and permissions were required for the business? Ans: a number of licenses and permissions were required. For example, the food premises license and the approval of the Council for the kitchen were necessary. Q 10: What were the resources that you had, that helped in running your business successfully? as I am a trained chef, it helped a lot in running the restaurant business successfully. Apart from these skills, my retained earnings also help in establishing the business. Part 2 Relevant law In order to decide the most appropriate structure for the clients, it is required that research should be conducted regarding the laws related with companies. The term company or a corporation includes all the legal entities that enjoy a separate legal identity. In the eyes of law, a company has its own identity and it is considered as being separate from the shareholders of the company. The law allows a company to own property in its own name. In this regard, the Corporations Act, 2001 (Cth) provides that a company has all the powers enjoyed by an individual and he does the legal capacity to issue and cancel shares. The doctrine of separate legal identity of the company was provided by the court for the first time in Saloman v Saloman Co Ltd.[1] According to section 45 A of the Corporations Act, a proprietary company has been described as the company that involves shares or share capital and it can have a maximum number of 50 shareholders. The proprietary companies are not required to make any disclosures to the investors.[2] A proprietary company is allowed to have more than one director. In this regard, section 113[3] of the Act provides that the person should do apply to the ASIC for the registration of a new company and there should be at least one shareholder. According to section 119, a company is considered as a corporate body on the same day when it has been registered. Therefore in this case, the company requires the status of separate legal entity.[4] The law provides that a proprietary company is not allowed to raise funds by inviting people. Only the shareholders or the employees of the corporation can lend money by acquiring more shares in the corporation. According to section 136,[5] a company should adopt a co nstitution where all the members of the company have agreed to it in writing at the time of registration of the company.[6] It has been provided by section 198A that the directors of the company have the responsibility to manage the affairs of the corporation and to exercise the powers that have been conferred by the long the directors. Another important provision in section 128 of the which provides that while dealing with a corporation, the outsiders can make certain assumptions regarding the appointment of the directors and officers of the corporation and also regarding the fact that all the internal procedures of the company have been followed while entering into a transaction.[7] Changing Company Type Section 162 of the Corporations Act provides that the nature of proprietary limited company can be changed into a public limited company. In this regard, section 163 provides that the existing company has to file an application with the ASIC to change the type of the company. Such application is required to accompany documents like a special resolution and a consolidated document containing the constitution of the corporation. According to section 165,[8] if the ASIC is satisfied with the application, it may allow the conversion of the existing proprietary company into a public limited company and issue a new registration certificate. Under the relevant provision is present in section 166[9] according to which the conversion of a proprietary company into a public limited company will not result in the creation of a new legal entity. In this way, the rights and obligations and the property of the company will not be affected by this change. According to section 124 of the Act, a company can issue shares, debentures or options and all legal capacity and powers have been provided to the company in this regard.[10] Similarly, it has been mentioned by section 254A that bonds and preference shares can also be issued by company. Certain duties have been imposed on the directors of the companies by the law. For example, according to section 180, it is the responsibility of the directors of the corporation to excise due care and diligence. Therefore the directors and the officers should perform their duties by exercising due care and diligence.[11] Section 181[12] is also related with the directors duties and provides that the powers should be exercised by the directors in good faith and further benefit of the corporation.[13] Similarly, section 182 mentions that the powers that be exercised by the directors and other officers of the corporation properly and for the benefit of the company.[14] According to section 286, it has been provided that the company is a disclosing entity and it is the obligation of the company to maintain the financial records efficiently that should be capable of revealing the actual financial position and performance of the corporation. In this context, section 292[15] provides that a public company is required to provide a financial report and the directors report regarding each financial year. It has also been mentioned by section 295 that the annual report of the company should contain financial statements an along with a declaration by the directors of the corporation. The directors are also required to prepare a report in accordance with section 300[16] and this report should mention the distribution of dividend to the members of the company. Section 307A is also relevant provision as it provides that audit should be performed in the company in accordance with the relevant accounting standards. The auditing firm should audit of the financial reports of the corporation regarding the financial year in accordance with the relevant standards.[17] Similarly it has been mentioned in section 308 that the auditors should inform the members of the corporation whether it complies with the relevant accounting standards or not. It has been mentioned in section 250N that a public company is under an obligation to hold an annual general meeting of the company within 18 months after the registration of the company.[18] Similarly the law provides that a public company should hold an annual general meeting of the company at least once in a financially year. All the records related to the company, like the financial records, director's report or the auditors' report should be presented in this meeting. According to section 516,[19] the members of the public limited company are not required to contribute anything more than the amount that has been paid by them on the shares of the company regarding the liabilities of the company. In this context, section 519 provides that the past members of the corporation, before the conversion of the company, will still be held liable for contributory to the debts and liabilities of the corporation. A very significant duty has been placed on the directors of the company by section 588G. this duty requires that the directors should not allow the company to involve in insolvent trading. This duty is applicable only person who is a director of the company when the company is going to incur a debt and as a result of such debt, the company may become insolvent. In such a case, the directors of the corporation will be held liable for the breach of this duty. On the other hand, if the failure to prevent the company from trading while these insolvent is dishonest, the director may be held criminally liable. Part 4: Advice After considering all the information that has been provided to me in this case, and keeping in view the aim of the business to expand in future, it can be suggested that there is an option available according to which, the proprietary limited company can be converted into a public limited company. In this case, the restaurant business is doing well and therefore in order to expand the business of the company to the desired level, a large amount of capital will be needed in future. Therefore, by changing the company into a public limited company, it will be easy to raise this large amount of funds that will be required for the expansion of the business in future. In this regard, section 162 of the Corporations Act provides that the existing proprietary limited company can be changed into a public limited company. For this purpose, an application has to be filed with the ASIC under section 163 for the purpose of changing the company into a public limited company. Along with this resolution, a special resolution passed by all the members of the board should be attached according to which, the board should have passed the decision of converting into a public limited company. Similarly, a copy of the constitution of the company should also be attached with this application as required by section 136 of the Act. In the same way, the copies of all the documents that are required to decide the rights and the obligations of the company should also be attached. In accordance with section 165, the ASIC may direct the company to fulfill all the necessary changes that has to be made in order to transform the company into a public limited company and ther efore, a new registration certificate will be provided to the company by the ASIC. After the proprietary limited company has been transformed into a public limited company, there will be a number of benefits available to the company. In this regard it has been mentioned in section 166 that the conversion of the proprietary company into a public limited company does not result in the creation of a new legal entity. Therefore the existing property and the rights and obligations of the corporation will not be affected by such transformation. However in this case, at least three directors will be required for the new public limited company and out of these, at least two directors of the company should be residing in Australia. After becoming a public limited company, the corporation of the client will have the power to issue shares, debentures, securities and options in accordance with s124. Therefore, shares can be issued by the company to the public for the purpose of raising capital for the expansion of the business of the company. The success of the business plans related with expansion required that appropriate capital structure should be decided for the company that can involve borrowings and issue of shares to the investors. Therefore, in the present case it is advisable that the nature of the company is changing to a public limited company. Bibliography Andrew Gibson Douglas Fraser, commercial law, (Lawbook Co: 1st ed,2003) Andy Gibson, Douglas Fraser, business law , 3th ed, 2007 Parker, Box, Business Law for Business Students (Lawbook Co: 2008 ed, 2008) R B Vermeesch, K E Lindgren, Business Law of Australia, 10th ed, 2001. Roger Gamble, et al, Principles of Business Law ( LawBook Co: 2008 ed, 2008) Stephen Graw, An Introduction to the Law of Contract (Lawbook Co: 6th ed, 2008) Case Law ASIC v Adler (No 3) (2002) 168 FLR 253 ASIC v Hellicar (2012) 86 ALJR 522 Brick Pipe industries Ltd v Occidental Life Nominees Pty Ltd (1992) 2 VR 279 Daniels v AWA Ltd (1995) 37 NSWLR 438 Saloman v Saloman Co Ltd (1897) AC 22 Legislature Section 113, Corporations Act, 2001 Section 136, Corporations Act, 2001 Section 165, Corporations Act, 2001 Section 166, Corporations Act, 2001 Section 180, Corporations Act, 2001 Section 292, Corporations Act, 2001 Section 300, Corporations Act, 2001 Section 516, Corporations Act, 2001