Assessment Details and Submission Guidelines
Business and Corporate Law
Case Studies of Business Law and Business Structures
Purpose of the assessment (with ULO Mapping)
The purpose of the Group Assignment is to provide students with an opportunity to work in a collaborative environment in solving two case problems by citing the relevant legal rules and cases and applying these to the facts of the case.
In this Group Assignments, students are required to:
Argument, Conclusion) framework to solve legal problems. (ULO 5)
40% of the total assessments
Group Written Report of maximum 2,000 words
The Group Assignment aims to provide students with an opportunity to work in a collaborative environment in solving two case problems by citing the relevant legal rules and cases and applying these to the facts of the case.
Students are to form groups, with a minimum of 2 and a maximum of 4 students per group. The assignment consists of a 2,000-word written report.
Instructions: Please read and re-read carefully to avoid mistakes.
Part A: Contracts Law Question (20 marks)
Wilona was married to Wilbur for 40 years. She was devastated when he passed away. She had been very reliant on him and left all their business matters to him. She had always been a religious person and turned to her faith for solace.
She was visited by her local priest, Father Devout. She talked about her situation with him and concluded that she should sell her matrimonial home and move into a small unit. Father Devout was himself looking for a new home after the church had informed him that it would be selling the bungalow adjacent to the church building in which he currently lived as a cost- cutting exercise. He mentioned this fact in passing and Wilona insisted that she sell her house to him. When he asked how much she would want for the property, she said she had no idea of its worth. However, she had heard a neighbour say that a house in the street had sold for about $200,000, but, because she knew that her house would go to someone deserving, she would sell it to him for $100,000. This was in fact half its true value. She wouldn’t take no for an answer and Father Devout knew her to be someone who would obstinately insist on something once her mind was made up.
Wilona needed a bridging loan to purchase her unit. She does not trust banks and instead approached Sly, a fellow parishioner. Sly was a wealthy businessman, who told her he would give her the necessary funds if she signed a receipt for it so he ‘would have something to show the taxman’. In fact, the “receipt” was a basically-worded loan document, which provided that she was liable for interest at twice the rate that she could have obtained from a bank. Wilona signed the document without reading it because she thought Sly, as a fellow churchgoer, was “a good man”.
Wilona’s son and daughter have just flown in from their respective homes overseas and discovered what Wilona has been doing. They seek your advice on whether she can undo what she has done.
Advise Wilona’s children, discussing all available grounds for relief under Australian contract law.
Part B: Business Structures question (20 marks)
Congratulations! You have secured a graduate position with a large firm of corporate advisers. Jessica, a partner in the practice, asks you to attend an 8 am meeting on Monday with herself and Julian Harris, a longstanding client of the firm. You will be required to take notes and prepare answers to Julian’s queries.
Julian Harris is married to Samantha Patel. They have one child, Pauline, who attends a local private school. Julian is very entrepreneurial and has been running a second-hand and vintage clothing business in Dandenong, Victoria, by himself as a sole trader for the past five years under the business name of Retrofit. A lot of Julian’s customers are other businesses, both local and overseas. Turnover was $285 000 in the first year and has now grown to over $3 million per annum.
The business operates from rented premises, but Julian would prefer to buy a building. Currently, Retrofit employs eight staff. Julian has plans to expand the business further. He also wants to diversify into food and catering in the near to medium term.
Julian’s mother, Bev, is a retired accountant and he regularly asks her for advice. Bev suggested recently that Julian should structure his business as a company. Julian is unsure about this. He makes an appointment to see Jessica.
Prior to the meeting, you review Julian’s file and note that he and Samantha have the following assets.
Pauline — they will be given to her when she turns 21. Julian and Samantha also jointly own a portfolio of blue chip Australian shares currently valued at $145,957.
In addition, Samantha works as a sales and marketing manager in the city for a financial services company. She is on a total salary package of $155,000.
At the meeting, Julian hands over last financial year’s business results and his draft budget of sales and expenses for the coming financial year. The budget for the new year shows expected sales of $3,764,000 and a net profit of $637,979.
Issues to be considered
During the meeting, Julian has a number of questions relating to important issues surrounding the future of his business. The issues arising include the following.
Part A: Contracts Law
Material facts relevant to the problem:
Whether the promise to sell Wilona’s matrimonial house can be enforced by Father Devout or the loan agreement entered between Wilona and Sly can be enforced? What reliefs are available under Australian Contract Law?
According to Australian Contract Law, the contract or agreement may be express or implied. Express agreement may be verbal or written agreements. Australian Contract act acknowledges oral contracts but, in the matter relating to transfer of land, the contract must be in written form.
Hence, in this case, it is to be analyzed that the receipt signed by Wilona i.e. the loan document can be terminated because she was cheated on by Sly, as he has charged double interest from Wilona because she trusted her, and though he would not do anything wrong to her and hence, she signed the receipt without reading it.
Legal issues and relevant law:
The Australian Contract law derives its principles from the English common law. The Australian contract law evolves on the concept of freedom of contract. The contract can bind only to the parties to the contract, this is also known as ‘Privity Rule’. Australian Contract law is based upon the bargain theory. As per this doctrine, both parties exchange their promises which are termed as Quid Pro quo in Latin. The contracts in Australian courts are decided on the basis of principles of equity. For the formation of an agreement, there are certain elements for making binding contracts: -
These elements are necessary to be present in the contract, otherwise the contract would not be enforceable. As the contract should be in written form so that the terms of the contract can be decided in the case of fraud.
Agreement is made of offer and acceptance. Offer is the willingness or intention of offeror to do or not to do certain things. Acceptance is the ascent or confirmation on the offer by the offeree. The offer once accepted becomes promise.
In this case, the loan agreement entered is considered as personal loan agreement between the lender i.e. Sly and borrower Wilona. The loan agreement is a legal binding document whether it is entered with a financial institution or a person. Also, the penalty for default is same as the contract (Yin, Kozlina, Green,, Siliquini-Cinelli, Laryea, & Spagnolo, 2020).
It is written in the law, that the parties have option to terminate or rescind the order in case they feel that they have been cheated on. This can be done by parties by entering into a new contract which will end the previous contract. The parties have the option to rescind the contract if there is either of the parties have misrepresented the information in the agreement. It will mean that no contract has ever existed in the first place. Hence, to cancel a contract it is important to analyze whether the parties have the option to rescind the order.
Application of law in recent case:
In this case, first Wilona has entered into a contract with Father Devout to sale her house for $100,000 instead of $200,000 because she thought that she is selling the house to somebody who is known as somebody who deserves the house. Hence, in this case, there is no legal obligation between the two and they have not entered into a contract. Hence, here it will be considered as an oral agreement where both the parties have mutually entered into the contract (Abdullah, 2020). However, due to this, Wilona has to take loan to purchase house for herself, and to do the same she entered into a loan agreement with Sly believing that they both know each other, and that Sly will act in good faith. However, Sly took the advantage of trust bestowed by Wilona and charged her double interest than what will be charged by banks and other financial institutions. However, it can be said that Wilona should have read the terms of contract or should have taken legal advice to understand the terms of contract.
As a remedy Wilona can try to talk to Sly to change the terms of agreement as the same is a personal loan agreement and they both are social peers and know each other from a long period. If both the parties agree, the original agreement can be terminated and they can enter into a fresh agreement. If Sly denies the proposition, Wilona can rescind the contract on the basis that the information in contract is misleading which will cause loss of interest to Wilona as she has to pay double interest. Hence, as a remedy Wilona can try to rescind the order in terms that the contract has ill effect and contains false information
Hence, based on above information, it can be said, that there are two separate contracts, one is between Wilona and Father, and other is between Wilona and Sly. Out of two contracts, the first one was entered willingly by both the parties i.e. Wilona has herself ordered to sell the house at lower prices and hence, no remedy is available. However, in second case, the contract was entered in good faith, and as both parties know each other, Wilona can rescind the contract on the basis that the same was misleading (Paterson, & Bant, 2020).
Part: B: Business Structure question:
Facts of the case:
In this case, Julian Harris is a sole proprietor of business named Retrofit where he has been engaged in the business of providing second-hand and vintage clothing line. The business is situated in Victoria, and Julian is in this line for past 5 years. He is married to Samantha and has a daughter Pauline who goes to a private school. However, when Julian started his business five years ago, his turnover was $285,000 and now his business has grown and his turnover is around $3million per annum. Also, Julian has estimated that his net sales in the next year will reach $3,764,000 and net profit will be $637,979.
Julian is right now considering to re-structure his business, and has talked to his mom Bev, who has suggested to turn his sole proprietorship into a company. Julian and Samantha owns a house property which is under the name of Samantha, They also has invested in shares of 2-3 companies which is like a future investment for their daughter, superannuation fund, two motor vehicles, and some furniture and shelves which are used in current business (Nanere, Plant, Trebilcock, Pattinama, & Arwani, 2020).
Currently, Julian works with a staff of 8 people, and wants to expand his business in food and catering services also. Hence, in this case, Julian is looking out for options, to re-structure his business without losing the ownership of his business. He would also like advice on the suggestion given by his mother i.e. to convert his business into a company, and what are the advantages and disadvantages attached to different business structure options.
Issues to be considered:
The different options which are available to Julian to structure his business are stated below:
|Type of business structure||Details regarding business structure|
|Sole trader||Julian right now is working as a sole trader, and if he is looking for expansion as well, he has the option to work as a sole trader. The business is easy to expand, as the legal formalities are very less. Also, all the risk and rewards will be enjoyed and beared by Julian himself. This busines structure will give Julian full ownership and the reporting requirements are very less. Hence, when Julian wants to expand, he can work as a sole trader, however, he will be liable for all the loses, and his personal property will also become liable.|
|Partnership||Under this option, Julian can enter into a partnership agreement with two or more people who will share the ownership, risk and rewards with each other. Among different types of partnership Julian can enter into a limited liability partnership where the liability is limited to the capital introduced by partners (RAJANAHALLI, 2020).|
|Company||Under this option, Julian will not be liable to losses incurred by company, as it will be treated as a separate legal entity. Though establishing a company is expensive, and requires severe documentation. Also, Julian will have to surrender his ownership, as in a company, shareholders are considered as owners of company.|
|Types of business structure||Ownership clause|
|Sole trader||The maximum amount of ownership that will be enjoyed by Julian is as a sole trader. He will be the one, responsible for all the decisions, and all the risk are to be borne by Julian as well.|
|Partnership||Under this, the ownership will be shared between two or more people, and Julian will not be able to make the decisions himself, without taking approval of the partners. Hence, in this case, there will be shared ownership, risks, and rewards.|
|Company||A company can be a private company which is run by a group of people, or a public company where the shares of a company are traded by a stock exchange, and public is allowed to purchase those shares. Hence, in both the cases, Julian will not have the ownership, as it will be shared between the members, and shareholders.|
Hence, as Julian has desired that he wants to be in control of his business, the best way to keep the ownership is to continue working as a sole trader.
Suggestion given by Bev:
Bev has suggested Julian to set up a company to continue to business. The decision of Bev is incorrect in terms that Julian wants to expand his business in different lines, and company will help Julian to attract investment from outsiders as well, and the risk in company will be limited, and Julian’s personal property will not be liable. However, if Julian sets up a company, he has to comply with legal procedures, maintain books of accounts. However, the decision is not suitable for Julian as he does not want to share his ownership.
Advantages and disadvantages of different business structure are:
|Type of business structure||Advantages||Disadvantages|
|Sole trader||Easy to maintain, Less legal procedures, ownership is enjoyed solely, rewards are enjoyed solely (Myers, 2020).||Limited funds, risks is to be owned by sole trader, personal assets are also liable, business income is added in personal income tax return.|
|Partnership||Legal obligations less than company, risk is shared, personal assets are not liable under LLP.||Reward is shared, partnership comes to an end, when partner leaves or dies, conflict of interest.|
|Company||Easy to arrange funds, legal recognition, limited liability, scope for expansion.||Ownership is shared, high level of documentation and legal obligation.|
Hence, on the above discussion and based on the choice of Julian it will be helpful if Julian continues his business as a sole trader, and for investment and expansion, he can take gift from his wife, and invest that money in his firm (WANG, 2020). This way he will be able to continue working as a sole trader, who has ownership for his business, and also there are no legal obligations that are to be fulfilled by him to expand his business, and hence, it will save the time and cost of Julian to expend on reporting requirements (Cappellino, 2020).