The given scenario highlights one key issue, which relates to the doubling of the catch through formation of a company by Bob on the basis of the advice given by his daughter Alice.
There are different forms of running a business in any nation and for Australia, the forms of partnership, sole proprietorship, or trust and company are available for initialing a business. It is crucial to select a form of business, so that the necessary rules and laws can be applied over business. The decision with regards to electing a mode of business is dependent upon advantages and the disadvantages which each business form offer. So, if an individual wants to opt for such a structure where the tax liabilities are not differentiated, they can go for a sole proprietorship. This form also allows the complete control over the business. If an individual wants to opt for shared profits and shared capital contribution, a partnership mode can be selected (Latimer, 2012).
A company is treated as the most suitable mode of carrying on business as it allows the individuals to limit their personal liabilities and raise the funds from public. A company form of business does not have an unlimited liability, as is present in the other forms, and also can be continued beyond the demise of its owners, due to its perpetual succession (Gibson and Fraser, 2014). The company form of business has a separate legal entity due to which it is differentiated from its owners. And due to this status, it can initiate a case against anyone, or can be sued by anyone and is treated as a separate person in the eyes of law. However, a company type of business in not unmarked by disadvantages. It is a very expensive form of business and has a very complex structure. A number of laws, legislations, statues, regulations and rules have to be followed by the company and it also has to bear the tax liabilities separate from its owners (Abbott, Pendlebury and Wardman, 2007).
The Corporations Act, 2001, which is an act of the commonwealth, provides the basic guidance for the operations of a company, which includes the details from forming a company, to its winding up (WIPO, 2015). Under section 124(1) of this act, the companies have been given the legal capacity as a person, which shows that a company has to be deemed as a separate individual. Further, this section empowers the companies to issue or cancel shares, issue debentures, and even grant option for the unissued shares (Australasian Legal Information Institute, 2017). Section 1.5.1 of this act further affirms the separate legal entity status of a company and states that the company has to be treated distinctively from its officers, employees and from its directors, who are assigned to run the operations of the company. So, not only common law, but also the statutory law gives the company the status of being a separate legal entity (Federal Register of Legislation, 2017).
The English case of Salomon v Salomon & Co Ltd [1897] AC 22 is the case where the separate legal entity concept of the company was upheld by the court. In this particular case, Salomon had been the shoe and boot manufacturer where his trade had been carried on in a manner where the company was held to be the agent of Salomon. When the matter was in the court, the judges held that this approach had been entirely wrong. The matter which was being decided here was related to holding Salomon liable for the liabilities arising upon him. The court denied the presence of principal agent relationship, as is found in partnership form of business, and the company cannot be taken as an agent to its shareholders. The court emphasized upon the need of treating the company as a separate entity. And so, Salomon had to bear the debts which were owed on the company by being its agent, by upholding the separate status of the company (Kershaw, 2012).
The separate legal entity status has been upheld in the cases of other nations too. In Lee v Lee’s Air Farming [1961] AC 12, which was a New Zealand based case, in which the court did not upheld the allegations which had been made by Lee as the company had a separate legal entity status (Bourne, 2016). Another case where this doctrine had been upheld was that of Industrial Equity Ltd v Blackburn (1977) 52 ALJR 89. In this matter, the holding company’s profits had to be determined on the basis of separate legal entity concept. The court held that the notion was wrong where the subsidiary was held as a component of its parent company (High Court of Australia, 2017).
On the basis of the facts given in this matter, as per the applicable act, a person could only catch 50 tones of scallops for each year and in case this limit is not adhered, a penalty would be imposed over the person breaching the limits, amounting to $100,000. Due to the company being a separate person as per the Corporations Act, the limits for the company would be calculated separately from its owner, who would be Bob in this case. In other words, the new company could catch the scallops as per the limits. And Bob being a separate person could catch another 50 tones of scallops each year. This would mean that the catch of Bob would be doubled due to the company and Bob being distinctive persons. Hence, the advice of Alice would be proved correct here.
Conclusion
On this basis, it can be concluded that the advice given by Alice is indeed correct.
The given scenario highlights one key issue, which relates to question regarding whether the company New Nirvana Limited, which is the parent company in this case, can be made accountable for the negligent act of Nuclear Blast Sounds Pty Ltd, which is the subsidiary company in this case.
Usually, a wholly owned company is taken to be the extension of the holding company. Even in such cases, the separate legal entity status of the holding and the subsidiary are maintained. At times, the holding company can be treated as a shadow director of the subsidiary company. As per corporation act’s section 9, any person who has the ability to control the operations of the company, or where the company acts on the basis of the directions given by the person, such person has to be deemed as the shadow director of the company. When the holding company has the power to appoint the board of the subsidiary and does so, it means that the control of the board is in the hands of the holding company. In such cases, the holding company is considered as the shadow director of the subsidiary company (Bonomelli, 2014).
The companies have been given a separate status from its owners, but in such cases where the evidence points towards a wrong doing through the use of the corporate structure of a company, the court can lift the corporate veil of the company and hold the ones who are really responsible for the wrongdoing liable for their acts. The doctrine of lifting of corporate veil stops the companies from escaping their liabilities by forming new companies, or person from hiding behind the company structure. This was seen in the matter of Creasey v Breachwood Motors Ltd [1993] BCLC 480 where the court held that the new company was formed just so that the liabilities under negligence for the old company could be escaped. Due to these reasons, the court held the new company liable for the negligence of the old company (French et al. 2016).
For taking any such action, it is crucial to show that the holding company had a dominating control over the subsidiary company, due to which reason the actions of the subsidiary company could be affected by the holding company. In absence of such dominating control, the holding company can be held accountable for the deeds of the subsidiary (Kerr, 2014). In the legal issue of Berkey v. Third Avenue Ry (1927) 244 N.Y. 602, the negligence of the defendant caused injury to the plaintiff and accordingly the plaintiff initiated claims against the defendant in the court. The court declined the application of the plaintiff as they held that the parent company did not have a dominating control over the subsidiary, which would held the parent liable (Lezcano, 2015).
On the basis of the facts given in this matter, the holding company would not be held liable for the tortious acts of its subsidiary, due to the lack of evidence which could show that the holding company had a control over the subsidiary company. As New Nirvana Limited played no role in the setting up of concert or even in giving directions to Nuclear Blast Sounds Pty Ltd for the concert, it could not be held accountable for the negligence of Nuclear Blast Sounds Pty Ltd. There is also a lack of foundation to lift the corporate veil in this case.
Conclusion
On this basis, it can be concluded that New Nirvana Limited cannot be held liable for the negligence of Nuclear Blast Sounds Pty Ltd. Further, Nuclear Blast Sounds Pty Ltd would have to personally bear its liabilities due to the tort undertaken by it.
The given scenario highlights two key issues, the first one relates to Millennium Pty Ltd being sued by Don in a successful manner. And the second one relates to the possible actions which Millennium Pty Ltd can take against Don.
The governing document of a company is it constitution or the replaceable rules, whichever had been adopted by the company. The company has the option of opting for either of these or a combination of these in a modified manner (Cassidy, 2006). Section 140 of the Corporations Act, 2001 presents that the constitution of a company creates an agreement between the company and
The Articles and Memorandum of Association of a company are other two crucial documents. The articles of the company provide the rights and duties of its employees, officers and directors. It also contains, at times, the appointment terms of the executives. So, it is crucial that the articles of a company are adhered to in a proper manner (Australian Government, 2017).
The significance of adherence to articles was seen in the matter of Eley v Positive Life Assurance Co Ltd [1876] 1 Ex D 88. In this matter, Eley had been given the post of attorney in the company for the lifetime. And after some time, Eley had been appointed as the member of the company and this particular appointment of Eley was covered under the articles of the company. Later on, Eley had been removed from his post and due to these reasons, Eley claimed that by removing him from the post, the articles had been breached by the company and so, he should be compensated for the loss. However, the court held a different view and stated that when Eley was removed from the post of attorney, his members’ rights were not affected which had been covered under the articles. And thus, the court dismissed the claims made by the plaintiff in this case (Dignam, 2011).
In the legal case of Hickman v Kent or Romney Marsh Sheep breeders Association [1915] 1 Ch D 881, the articles needed that before a case could be made in the court, it had to be referred to an arbitrator. When the plaintiff made a case in the court without adhering to these conditions, the court refused to give the ruling on this matter and instead granted the defendant a stay on these proceedings (Swarb, 2015).
On the basis of the facts given in this matter, Don would fail in his actions against the company as his members rights were not breached in this case as per Eley. Further, the court would grant a stay on his proceedings to Millennium Pty Ltd on the basis of Hickman.
Conclusion
On this basis, it can be concluded that the Don’s actions would fail and instead, a stay would be granted to his proceedings.
Reference List
Abbott, K., Pendlebury, N., and Wardman, K. (2007) Business Law. 8th ed. London: Thomson.
Australasian Legal Information Institute. (2017) Corporations Act 2001. [Online] Australasian Legal Information Institute. Available from: https://www.companydirectors.com.au/director-resource-centre/organisation-type/organisation-definitions [Accessed on: 07/06/17]
Australian Government. (2017) Corporations Act 2001. [Online] Australian Government. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 07/06/17]
Bonomelli, M. (2014) Wholly-owned subsidiaries: same same but different. [Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=90cc6c72-de1a-4ba7-91d0-7cd7a798c5ed [Accessed on: 07/06/17]
Bourne, N. (2012) Bourne on Company Law. 7th ed. Oxon: Routledge.
Cassidy, J. (2006) Concise Corporations Law. 5th ed. NSW: The Federation Press.
Dignam, A. (2011) Hicks & Goo’s Cases and Materials on Company Law. 7th ed. Oxford: Oxford University Press.
Federal Register of Legislation. (2017) Corporations Act 2001. [Online] Federal Register of Legislation. Available from: https://www.legislation.gov.au/Details/C2013C00605 [Accessed on: 07/06/17]
French, D., Mayson, S., and Ryan, C. (2014) Mayson, French & Ryan on Company Law. 31st ed. Oxford: Oxford University Press.
Gibson, A., and Fraser, D. (2014) Business Law 2014. 8th ed. Melbourne: Pearson Education Australia.
High Court of Australia. (2017) Industrial Equity Ltd v Blackburn. [Online] High Court of Australia. Available from: https://eresources.hcourt.gov.au/showbyHandle/1/230830 [Accessed on: 07/06/17]
ICNL. (2017) Corporations Act 2001. [Online] ICNL. Available from: https://www.icnl.org/research/library/files/Australia/Corps2001Vol4WD02.pdf [Accessed on: 07/06/17]
Kerr, D. (2014) Hiding Behind Subsidiaries: Holding Parents Liable. [Online] The GULS Law Review. Available from: https://www.gulawreview.org/entries/commercial/hiding-behind-subsidiaries-holding-parents-liable [Accessed on: 07/06/17]
Kershaw, D. (2012) Company Law in Context: Text and Materials. 2nd ed. Oxford: Oxford University Press.
Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, NSW: CCH Australia Limited.
Lezcano, J.M. (2015) Piercing the Corporate Veil in Latin American Jurisprudence: A Comparison with the Anglo-American Method. Oxon: Routledge.
Swarb. (2015) Hickman V Kent Or Romney Marsh Sheep Breeders ‘ Association; 1915. [Online] Swarb. Available from: https://swarb.co.uk/hickman-v-kent-or-romney-marsh-sheep-breeders-association-1915/ [Accessed on: 07/06/17]
WIPO. (2015) Corporations Act 2001. [Online] WIPO. Available from: https://www.wipo.int/wipolex/en/text.jsp?file_id=370817 [Accessed on: 07/06/17]
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