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Corporation Law Assignment Question 1: Issue: liabilities of partners among themselves and third parties for doing wrongs

partner duties in the partnership. Law: liability of partner to third party Joint liabilities Several liabilities Features of partnership There are many features of partnership provided by the act. Among them following are the important features of Partnership are:i.Agency ii.Fiduciary relationship iii.consent i. Agency: Each of the partners is an agent of all other partners in the partnership business. Section 8 of partnership act states: Every partner is an agent of the firm and his other partner for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partner, unless the partner so acting has In fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing knows that the partner has no authority, or does not know or believe him to be a partner . ii. Fiduciary Responsibility: partners have rights and power to practice for the benefits of each other. This responsibility is a legal or ethical relationship of confidence or trust regarding the management of money or property between two or more parties, most commonly a fiduciary and a principal. One party, for example a corporate trust company or the trust department of a bank, holds a fiduciary relation or acts in a fiduciary capacity to another, such as one whose

funds are entrusted to it for investment. In a fiduciary relation one person, in a position of vulnerability, justifiably reposes confidence, good faith, reliance and trust in another whose aid, advice or protection is sought in some matter. In such a relation good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests. Every partner is an agent of the firm and his other partner for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on in the usual way business of the kind carried on by the firm of which he is a member bind the firm and his partner, unless the partner so acting has In fact no authority to act for the firm in the particular matter and the person with whom the partner is dealing knows that the partner has no authority, or does not know or believe him to be a partner .

iii. Consent: it is very important element of partnership. The partners consent may be oral or in written form. Their consent may also be implied.

Liabilities of partners As partnership is not a separate legal entity, it cannot itself contract with outsiders. Outsiders should contract with one or two partners of the firm. Whenever a partner enters into a contract with an outsider, the crucial question that arises is: has the contract bound the firm or only the contracting partner? This question is addressed in s 8 of Partnership Act. This provision results from the common law view of partnership as an agency. In Bairds Case, Re Agriculturist Cattle Insurance Co (1870) LR 5 Ch App 725 at 733, James LJ said: As between the partners and the outside world (whatever may be their private arrangements between themselves), each partner is the unlimited agent of every other in every matter connected with the partnership business, and not being in its nature beyond the scope of the partnership.

Joint liability: If parties have joint liability, then they are each liable up to the full amount of the relevant obligation. So if a husband and wife take out a loan from a bank, the loan agreement will normally provide that they are to be "jointly liable" for the full amount The converse is several liabilities, where the parties are liable for only their respective obligations. A common example of several liabilities is in syndicated loan agreements, which will normally provide that each bank is severally liable for its own part of the loan. If one bank fails to advance its agreed part of the loan to the borrower, then the borrower can only sue that bank, and the other banks in the syndicate have no liability.

APPLICATION:

Alvarez and Jara are partners in the business of security guard by Downs Nighwatch Company. Being partners, they have fiduciary duties between each other which stands they have to act on the ground of trust and honesty for the advantage of each other. In the course of business, Jara gets tempted by the offer from a dacoit and hence goes beyond his fiduciary duty, ultimately breaching the contract with the jewellery shop. As partnership act states that partners are agents to the firm. Moreover they are as well the agent of each other, their deeds and activities definitely affect the other. After Jara was sentenced for 10 years imprisonment, it is Alvarez who has to bear the consequences of the misconduct of the co-partner. Partnership act S 15 of provides the liabilities of partners- joint and several. Hence, Alvarez is liable for the misconduct of his co-partner.

The only remedy available for Alvarez is to compensate the jewellery shop owner is to get recovery from the sale of the land that Jara bought with the money ($100000) in gold coast. It can be assumed that the price has although climbed substantially, but the proceed would not be enough to recover the damage to the jewellery shop owner and Alvarez is liable for the rest of the amount.

CONCLUSION:-

Alvarez is liable for the damage and he should pay the rest of the amount after the sale of Gold coast property.

Answer to Question 2:

Issue: liability of Trust, Trustee and Beneficiaries to Creditors.

RULES

A trust is an equitable obligation which binds trustee to deal with the trusts property for the benefits of the beneficiaries holding equitable interest. The trust relationship is not based on the contract and even a trust is not a legal entity. Trustee is the legal owner of the property and the beneficiaries are the equitable owners.

Basically trust have four important features which are: 1. 2. 3. 4. Settlor The person who creates the trust can be defined as the settlor Trustee Trust has one or more than one trustee. It could be in any form like it can be a natural person or a body corporate. Law stated that, the trustee is the legal owner of the trust property. Equity has put duties on trustee while dealing with trust property. Beneficiary Beneficiary is the person for whose benefits the trust is created. It can be specific persons or a group of persons or a charitable purpose. Companies may be beneficiaries as they are considered legal persons by law. Trust property Traditionally trust property could be anything real property (land), personal property (money, chattels or accounts receivable) or intellectual property. Today, it also includes business stock and goodwill, leasehold interests, shares or patents. Settlor Trustee Beneficiary Trust property

Characteristics of a trust y A trust is only a relationship. y A trust does not have a separate legal identity from its members. y The rights of the beneficiaries arise from the rules of equity and the terms of the trust.

Types of trust Trusts may be either: y a discretionary trust or y a fixed trust. Discretionary trust In this type of trust, the trustee has discretion as to which beneficiaries receive what proportion of the trust funds. So a particular beneficiary cannot enforce the trustee to act on his favour.

Fixed trust In this type of trust, the trustee does not have any discretion for apportioning the trust funds among the beneficiaries.

A trust deed of settlement identifies the settler the trustee and the beneficiaries and authorizes the trustee to the application of the trust fund.

Operation of a trading trust The trust property of a trading trust includes an operating business that is carried on by the trustee on behalf of the beneficiaries. The trustee is usually a proprietary limited company with $ 2 share capital ($ 2 Company). Shareholders of a limited liability corporate trustee have liability limited to the unpaid amount of shares, if any. Although the trustees liability as a company is unlimited, the only asset it has is the $ 2 share capital.

Liability of trustee to creditors

A trust is not a separate legal entity. So a trustee enters into contracts with the outsiders on its own name not as an agent on trusts behalf. The trustee of a trading trust is personally liable for the debts incurred in carrying on the trust business: The trustee has a right of indemnity against the trust.

Right of indemnity The trustee has a right to be indemnified out of the trust fund in respect to any costs or debts incurred by him on behalf of the trust. Section 72 Trusts Act states that: A trustee may reimburse himself for or pay or discharge out of the trust property all expenses reasonably incurred in or about the execution of the trust of powers. This indemnity is available only if the trustee was acting properly and within his powers. The trustee has a lien over the trust estate to enable him to obtain reimbursement. A lien here means that if the trustee lawfully has possession of trust property, then he is entitled to retain it until he is indemnified.

If the trust assets remain insufficient, then the trustee remains liable for the shortfall.

For the debts unauthorized by the trust deed, the trustee has no right to indemnity from trust assets.

The directors of a corporate trustee do not become personally liable under the Corporations Act merely because the trust has insufficient funds to meet the debt. Creditors have no rights, in the first instance at least, against the trust fund. If a creditor is not paid by the trustee, then the creditor obtains the same rights against the trust fund as the trustee has. This means the creditors are subrogated to the trustees right of indemnity against the trust assets. Because the trustee has a lien over trust property, then creditors, on exercising their subrogation rights, will have priority over other creditors who may be claiming against the trustee for debts that do not relate to the trust in other words, debts personal to the trustee.

It follows from what has been said above that if the trustee has no rights against the trust fund, nor has the creditor. The trustee may not have right of indemnity in one of two situations: 1. The trustee has acted outside his power as either contained in the trust deed or as laid down in the general law of trusts. 2. The trust instrument (or deed) itself might specifically exclude the trustees right of indemnity either absolutely or in certain situations. Section 197 of the Corporations Act provides that where a corporate trustee is for any reason not entitled to be fully indemnified out of the assets of the trust, then the directors of that corporate trustee are personally liable for the debts. The loss of indemnity referred to will include the situations covered by points 1 and 2 above. It should also be noted that the directors are not liable simply because of the lack of funds in the trust. The provision relates to the legal right of indemnity of the trustee (and therefore creditors), not the financial capacity of the trust to pay.

The trustee is liable at common law on all contracts into which he enters with the third persons even though his actions are for the benefits for the trust. If the creditors are not paid by the trustee, then the creditors obtain the same rights against the trust funds as the trustee has. This means the creditors are subrogated to the trustees right of indemnity against the trust assets. The corporation law 2001 s 197 states that where a corporate trustee is for any reason not entitled to be fully indemnified out of the assets of the trust, then the directors of the corporate trustee are personally liable for the debts. Creditors have no right against beneficiaries personally; however in some cases the trustee may seek a contribution to trust debts on the behalf of the creditors. The circumstances in which a beneficiary may be liable will depend upon the type of trust involved that is whether it is discretionary or fixed. In discretionary trust, since beneficiaries do not have beneficial interest in trust assets they are not liable to indemnify the trustee. To these two exceptions there might now have to be added a third. In McLean v Burns Philip Trustee Co Pty Ltd and Ass (1986) Young J said:

So that where there is a discretionary trust which is so geared to enable a person to avoid his creditors by hiding behind the vehicle of the trust, equity would not allow to happen.

APPLICATION:-

Henry and his wife Delia are the directors of Hendy Pty.Ltd. Which is a $2 company. Along with themselves the company has two more members as a beneficiaries , their son Philip and his two minor children. The trust deed authorizes the trustee to run a cattle farm in the Darling Downs area. Due to heavy drought that year their area was badly affected. So to overcome this very situation Henry and Delia, as directors, decided to change their business by running tours into Bunya National Park. They contact Farm Bank and provide the trust deed. As they are get succeed to change their business by running tours into the Bunya National park but being a unsuccessful in their business they have a deft to pay $6000 to creditors and $25000 to the bank respectively. Knowing $2 as the trustee, the farm bank manager approved their request for loan. As farm manager was provided with a copy of trust deed. While going through all these circumstances, Hendy Pty Ltd is responsible for the doing of the Henry and Delia Family Trust because $ 2 Company was register as a trustee. The directors of the trust decided to diversify the business against the trust deed and they have not taken any kinds of consent from other beneficiaries. Hendy P/L has lost its power of indemnity as it has acted beyond its power. Trade Creditors therefore have no right of subrogation and cannot get the trust fund. However the creditors were unknown of the trust deed, so they might get some remedy. Moreover, trade creditors have obtained the right to sue the directors.

But they have no rights to sue other beneficiaries. Beneficiaries have made no request to the directors for the diversification so it seems that they may not be liable. Henry and Delia has provided the bank manager with the copy of trust deed so the bank is unable is unable to make claim against the trustee, but it can sue the directors for the recovery for recovery of the loan they had taken from the bank. CONCLUSION:The trust, Henry and Delia Family Trust, as well as the trustee Hendy P/L is not liable. The trade creditors may sue the directors Henry and Delia but may not sue the beneficiaries Philip and his 2 minor children.

Q.3.a. Issue: Validity of the Gift Law: Unincorporated associations are not regarded as legal entities by law even though their members may regard them as independent organizations. They are really only a collection of people acting together. This is the most obvious difference between unincorporated and incorporated organizations. Members of an unincorporated association are, subject to the powers of the association's constitution, capable of entering into contracts and doing things on behalf of other people in the association. They are also individually and personally responsible for any debts incurred in the name of the association. Where a contract is signed on behalf of an unincorporated association, the individual members are responsible and may be sued. Similarly, if someone is injured through an unincorporated association's negligence and there is no insurance, the association cannot be sued but individual members may be sued. For the importance of insurance for community organizations, whether unincorporated or incorporated, As an unincorporated association has no legal identity, it cannot hold assets in its own name. It must appoint individuals as trustees, who own the assets but hold them for the benefit of the association. The trustees are bound by the Trustee Act... Many community organizations rely on grants to operate. It is a requirement of many funding programs that the organisation seeking funding must be incorporated. Hence an unincorporated organization can be defined as below: i. An incorporated body is not a separate legal entity and has no existence separate from its members. It lasts only as long as its members. It can neither take any legal action on its own name nor deal with any property.

ii. The body of members as the association also is not recognizable as the members are changing and reconstituting the group. iii. There is not normally any contractual relationship among members.

Conclusion: Toowoomba cricket club, being an unincorporated body cannot receive such gifts. Hence the Clints gift is invalid.

Q.3b Clint would have considered followings so that the gift will be honoured in full. i. to make a gift to an unincorporated body, Clint should make certain that the gift is not made for the purposes of the body itself and it has to make clear in the gift is made for the members of the association as individuals. ii. Clint should specifically state in the will to receive a receipt of the gift by a nominated officer of the organisation (for example:- Treasurer, chairman etc.). iii. Clint has to make sure that his gift would be donated during his life. He should be aware that legal issues may arise after the death. iv. Clint had to be aware of the legal implications of the gift to the unincorporated organisation. As an unincorporated organisation cannot hold property on its own name and it should appoint trustees for the purpose. On the event of not having a trustee, Clint should have made necessary arrangement in the club, he himself being the member, for the appointing trustees. For the benefit of the members, the club would have done such formalities.

Q4. As in the case Debbie and George are forming the partnership as office cleaning. They are giving their own arguments regarding what type of company they will adopt so that they can make more profit in their partnership. Debbie is in a favor of one limited by guarantee so that it would work with leased equipment which requires no capital at all. Moreover if they go with one limited by guarantee, they can divide any profits between themselves and members of their families in agreed proportions. On the other hand George prefers no liability company because he didn t want to be liable for the debts of the company. According to liabilities of members, Companies can be categorized into four types: 1. Trading company: - A trading company is the one which needs the substantial capital which is obtained by issuing shares. The liability of a shareholder is limited by the number of shares taken and the amount unpaid on each of the shares held. With minor exceptions, the shareholder cannot be called up to contribute more than this amount in satisfaction of the companys debt. 2. Company limited by guarantee: - A company limited by guarantee is formed mainly for educational, charitable, religious, social and related purposes. The apical required for the operation of such company may be obtained by donations or a membership fees or by fund raising activities. 3. Unlimited company: - as name says, the members of these types of company have the unlimited liability and the members do not enjoy limitation of liability benefits. That means, they are liable to any extent of the liability. They are liable to contribute companys debt above and beyond the value of its assets and amount. 4. No-liability Company: it is a company which is not forced to recover calls made upon its shares from the shareholder who defaults in the payment. But these kinds of company are basically registered only for mining purposes. As going through the different nature of company it seems they do not go either type of the companies. Rather it seems that they prefer to go for the small proprietary company. It also seems better for them to choose small proprietary company because they can have only one person as director as well as there is no

such requirement of age limit for the retirement of the director. As indicated in the corporation Act 2001 it defines proprietary company as: Proprietary company is a company that do not exceed more than 50 employee and it can be registered as a proprietary company and have different financial reporting obligations depending on whether they are small proprietary or large proprietary companies. In subsection 1 it says count joint holders of a particular parcel of shares as 1 person and an (1) a company must have no more than 50 non--employee shareholders if it is to: (a) Be registered as a proprietary company; or (b) Change to a proprietary company; or (c) Remain registered as a proprietary company. . Proprietary Companies A proprietary company must comply with s112 and 113 of the Act which states that a proprietary company: 1. must be either limited by shares; or an unlimited company that has a share capital and 2. Must have no more than 50 non-employee shareholders. A proprietary company must not engage in any activity that would require disclosure to investors under Chapter 6D, except for an offer of its shares to: 1. existing shareholders of the company or 2. Employees of the company or a subsidiary of the company. If a proprietary company contravenes s113, one consequence is that ASIC may require it to convert to a public company (s165).

B) The things to be considered to register a company:y y y y y y y y y

the proposed company name (if the company does not have a proposed company name, the name on registration will be its ACN) the class and type of company the registered office details the principal business office details director and secretary details share structure details and Members' share details. Details of the company Officeholders appointment With these details, Debbie and George have to fill form 201 and submit it to ASIC.

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