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4/7/18

LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

WELCOME •  Unit Assessor – John Orr •  e-mail [email protected]

•  Lecturer – Paula Hallam •  Lismore Campus – Room L-210 •  e-mail [email protected]

Note: if contacting via email — please make it clear that you are studying LAW00004 Company Law

Unit information

UIG (available on BB) •  Prescribed texts and materials: page 5 •  Suggested timetable; page 13 •  Assessment; pages 8-10

Also see BB Assessment details and marking criteria.

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Prescribed Texts Yogaratnam J and Xynas Thomson Reuters Corporations Law: Corporations In Principle, 10th ed 2016 Legislation 2018

Timetable: Lectures •  Tuesday 10-12 Tutorials •  Face-to-face Lismore Tuesday 12-1pm, •  Face to face Gold Coast Friday 12-1pm & 1-2pm •  Collaborate Thursday 6-7pm (NSW-time) Tutorials are one week behind No tutorials this first week

Assessment There are 2 compulsory assessment items. Research Assignment = 50% •  Details on BB Assessment Tasks and Submission •  2400 word limit •  To be submitted by 27 August 2018

Exam = 50%. •  2 hour, open book

Note: To pass this unit you must: •  submit both assessment items and •  achieve an overall mark of 50/100

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WEEK 1 – TOPIC 1

Business structures Partnerships

Text book - Chapter 2

BUSINESS STRUCTURES AIM: At the end of this topic you

should understand:

•  Different types of business structure: •  Features •  Characteristics •  Advantages/disadvantages

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Business Structures Factors that may be considered: •  Establishment procedures •  Managerial Control •  Capital and finance needs •  Risk and liability •  Privacy •  Flexibility - size and growth •  Continuity of existence •  Regulation and external constraints •  Costs •  Taxation and superannuation

Business Structures

•  Sole trader •  Trading trust •  Associations & others •  Joint Ventures •  Partnership (Topic 1) •  Company/Corporation (Topic 2-8)

Sole trader

• Trades in own name (no cost) or via registered business name

• Proprietor = the tax payer • Not a separate entity in law • No separation of business and personal assets/ liabilities

• Carries all the risk - personally liable for all debts

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Business Structures

•  Sole trader ✓ •  Trading trust •  Associations & others •  Joint Ventures •  Partnership (Topic 1) •  Company/Corporation (Topic 2-8)

Trusts •  Creation of law of equity •  Separation of legal & equitable (‘beneficial’) rights in

property •  ‘A device by which one person holds property for

the benefit of another’: •  Settlor •  Trust property •  Trustee •  Beneficiary

•  Trust is not a separate legal entity

Trust deed

Trustee

Trust

Beneficiaries

Settlor

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Types of trusts

Trusts

Express

Discretionary

Fixed

Unit

Trading

Non-express

Constructive

Resulting

Implied

Business Structures

•  Sole trader ✓ •  Trading trust ✓ •  Associations & others •  Joint Ventures •  Partnership (Topic 1) •  Company/Corporation (Topic 2-8)

Associations •  Purposes unconnected with profit making

•  Charitable •  Religious •  Educational •  Sporting

Associations

unincorporated incorporated

Co-operatives – not covered by

this unit

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Incorporated Associations •  More than 5 persons may incorporate under

Associations Incorporation Act 2009 (NSW); s 6 •  NOT for trading purpose or profit of its members.

Unincorporated Associations •  Not separate legal entities •  Cannot enter into contracts in their own name or hold

property.

Incorporated Association

•  Perpetual succession •  Can sue or be sued in its own name & enter contracts •  Members & committee members have limited liability •  Debts enforceable against the association only •  No capital divided into shares •  No holding property in which members have a disposable

interest •  CANNOT be a registered trade union, co-operative, credit

union •  Procedural requirements re AGMs & appointment of

officers

Business Structures

•  Sole trader ✓ •  Trading trust ✓ •  Associations & others ✓ •  Joint Ventures •  Partnership (Topic 1) •  Company/Corporation (Topic 2-8)

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Joint Ventures •  Common in mining exploration, property

development, publishing, hospitality management •  Common undertaking to generate product to be

shared vs profit •  Generally a single project/venture •  Taxed individually •  Not a ‘business in common’ but enterprise combining

different skills/assets of parties •  Not agents for each other •  Liability = unlimited but several not joint.

Liability: JOINT – each party liable for full amount/obligation SEVERAL – ‘proportional liability’ – each party liable for only their respective obligations JOINT & SEVERAL – each party jointly liable, but can pursue other party for a contribution to their share of liability

Judicially definition of ‘joint venture’

Brian Pty v United Dominions Corporations Ltd (1983) 1 NSWLR 490, 506 as

‘An association of persons, natural or corporate, who agree by contract to engage in some common, usually ad hoc undertaking for joint profit by combining their respective resources, without, however, forming a partnership in the legal sense … or corporation; their agreement also provides for a community of interest among joint venturers each of whom is both principal and agent as to the others within the scope of the venture over which each venturer exercises some degree of control.’

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Joint Venture • Fine line between a ‘joint venture’ and a partnership United Dominions Corporation Ltd (“ UDC”) v Brian Pty Ltd (1985) 157 CLR 1

• Courts not bound by words of agreement, rather analyse activities/actions of parties Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321

• Fiduciary obligations? UDC v Brian Pty Ltd (1985) 157 CLR 1

Business Structures

•  Sole trader ✓ •  Trading trust ✓ •  Associations & others ✓ •  Joint Ventures ✓ •  Partnership (Topic 1) •  Company/Corporation (Topic 2-8)

BUSINESS STRUCTURES AIM: At the end of this topic you

should understand:

•  Different types of business structure: •  Features •  Characteristics •  Advantages/disadvantages

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TOPIC 1 PARTNERSHIP Textbook, 10th ed, Chapter 2 Turner & Trone, Australian Commercial Law, 2014 •  Chapter 13 - Agency •  Chapter 26 – Partnership •  Chapter 27 – Company Law Available on BB Unit Content

PARTNERSHIPS AIM: At the end of this topic you

should understand:

•  Essential elements of a partnership •  Formation and dissolution of a partnership •  Relationship between partners – rights and liabilities •  Relationship with third parties

Partnership •  Partnership law was originally a general law concept but

today has been largely codified by statute in an almost uniform way in all state and territory jurisdictions

•  The principles of partnership law are contained in: •  Partnership Acts of the states and territories •  Rules of the common law and equity except where they are

inconsistent with the Act; see section 46 •  (Other statutes, including Corporations Act 2001 (Cth) and

Taxation legislation also regulate aspects of partnerships)

•  NSW - Partnership Act 1892 (NSW) •  Comparative table of legislation in Australian jurisdictions

– Textbook p 80-81

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Partnership Acts Comparative Table

Text book10th ed, pages 80-81

Partnership Act 1892 (NSW)

A link to the Partnership Acts can be found in the study guide.

E-copy - GO TO www.austlii.edu.au NSW Legislation New South Wales Consolidated Acts ‘P’ PARTNERSHIP ACT 1892

Table of provisions, familiarise self with contents Note ‘Parts’ & ‘Divisions’ & integrate with the material in Topic 1.

Formalities: limitations

Under section 115 Corporations Act 2001 (Cth) a partnership or association which has an ‘object of gain’ can NOT > 20 members unless it is incorporated Exceptions: Reg 2A.1.01 Corporations Regulations 2001 (Cth) •  Actuaries, medical practitioners, share brokers up to 50 •  Architects, vets and chemists up to 100 •  Legal practitioners up to 400 •  Accountants up to 1000

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Formalities for creation of partnership

•  No prescription under PA •  Creation

•  In writing •  Verbally: Lawrence v Gunner, Gunner v Lawrence [2015]

NSWSC 944 •  Inferred by conduct: Canny Gabriel Castle Jackson

Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd •  By estoppel (holding out) s 14 PA

•  Contractual - rules applicable to formation of contract

•  Rights and duties of partners - PA section 19 •  Registration of business name

Partnership determinations

•  Courts are often involved to determine whether a partnership exists.

•  Why?

•  Third Party may want to make one of the partners liable, or

•  May want to take advantage of some provision in the partnership legislation, or

•  May wish to have the alleged partnership declared invalid

•  Property dispute

Partnership determination •  Where there is a written partnership agreement, the

agreement will evidence the contract of partnership.

•  Where there is no such agreement or where there is

ambiguity/ unclear terms regard will be had to the provisions of the Partnership Act (especially ss1 & 2)

•  The intention of the parties to carry on a business in common as expressed by mutual rights and obligations which is evident by looking at the total facts.

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Statutory definition of a “partnership”

Section (1)(1) of the Partnership Act 1892 (NSW) ‘Partnership is the relationship which exists between persons carrying on a business in common with a view of profit…’ Essential elements: 1.  Carrying on a business 2.  By persons in common 3.  With a view of profit

Canny Gabriel v Volume Sales (1974) 131 CLR 321

A financier (V Ltd ) agreed to finance certain contracts arranged by a concert promoter (F Ltd) for public performances by two world famous singing stars. There was a detailed written agreement which described the arrangement as a joint venture.

The question arose whether there was a partnership. HCA

found the three essential elements and held that it was a partnership

Duke Group Ltd v Pilmer [1999] SASC 97 ‘The indicia of a partnership’ Case Extract BB My Readings

Statutory definition of a “partnership”

•  Section (1)(1) of the Partnership Act 1892 (NSW) “Partnership is the relationship which exists between persons carrying on a business in common with a view of profit…” Essential elements: 1.  Carrying on a business 2.  By persons in common 3.  With a view of profit

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1: Persons carrying on a business

• ‘Persons’ includes any legally recognised person, including a company

• ‘Business’ defined section 1B(1) PA •  Must be the same business Checker Taxicab Ltd v Stone [1930]

NZLR 169

• ‘Carrying on’ – no statutory definition • Judicial guidance

Smith v Anderson (1880) 15 Ch D 247 UDC Ltd v Brian Pty Ltd (1985) 157 CLR 1

•  Fulfilled if agency relationship binds parties, where each party carrying on business is acting on behalf of the others

•  The intention of the parties is essential in determining the scope of the agency relationship

•  Judicial interpretation includes inactive capital contributors (‘sleeping partners’) Duke Group Ltd v Pilmer [1999] SASC 97

•  More than agency – mutuality of rights and obligations between the parties Smith v Anderson (1880) 15 ChD 247.

2: ‘in common’

!  Not necessary for each of the partners to be actively involved in the conduct of the business

!  Courts look to the legal relationship between the persons involved

!  Courts look for evidence that partners have ‘a mutuality of rights and obligations between them’ and that they each act as agent for all the other persons who are alleged to be partners

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3: ‘With a view to profit’

•  Intention to make profit ‘at very heart’ of partnership relationship Bova v Avati [2009] NSWSC 921

•  Immaterial if venture successful or not and makes losses

•  ‘Profit’ not defined in Partnership Act

Duke v Pilmer [1999] SCSA 97 •  K completed a takeover of W. Prior to takeover bid for W,

K retained NWP (practising accountants) to prepare a report to comply with the ASX Listing rules. NWP concluded that the proposed takeover price was ‘fair and reasonable’. During the takeover a major stock market crash occurred (19/20-10-87) & the price fell sharply. Nevertheless the takeover offer proceeded

•  K commenced proceedings for negligence, breach of contract & breach of fiduciary duty against a large number of accountants practising under NWP in various States

•  Court had to determine whether a national partnership existed > applied the three essential elements of a partnership to the factual scenario

Duke v Pilmer [1999] SASC 97 para 973

•  ‘…the effect of the authorities is that, however profit may be identified or calculated, it connotes a direct and definable pecuniary gain. It does not mean the receipt of some other type of benefit or advantage, even if some benefit ultimately leads to a pecuniary gain’

Take a look at the Duke v Pilmer case extract •  Carrying on a business •  In common •  With a view to profit – ‘pecuniary gain’

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Partnership Act 1892 (NSW)

• (Section 1 – essential elements of a partnership) • Section 2 – indicia of partnership, framed negatively

• Each rule does not of itself create a partnership 1.  common ownership of property 2.  sharing of gross returns Cribb v Korn (1911) 12 CLR 205 3.  sharing of profits and losses

PARTNERSHIPS AIM: At the end of this topic you

should understand:

•  Essential elements of a partnership ✓ •  Formation and dissolution of a partnership •  Relationship between partners – rights and liabilities •  Relationship with third parties

Lecture summary •  There are various business structures •  Any particular business structure is utilised to serve

some particular purpose

•  A partnership is defined as the relationship which exists between persons carrying on a business in common with a view to profit: Partnership Act 1892

The three essential elements of a partnership: •  the carrying on of a business •  in common •  with a view of profit Note, read and understand the Duke v Pilmer (extract)

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! Compare and contrast joint venture v partnership. ! Explain partnership formation ! Define a partnership at law ! 3 essential elements: 1.  Carry on a business 2.  In common 3.  View of profit ! Statutory rules for determining existence of partnership

Next week

•  Lecture - Complete Topic 1 Partnership Law

•  Tutorials (Lismore, Gold Coast, Collaborate) Prepare Activities 1.1.1 & 1.1.5