Question one
Elizabeth, Georgina and Sarah are partners in a successful restaurant business conducted in Brisbane. They have a partnership agreement which authorises each partner to enter into a contract, on behalf the partnership, up to a maximum value of $1 000. Eddie, a local timber merchant, approaches Georgina and offers to sell various timber products worth $25 000 the partnership. Eddie is not aware of the partnership agreement. To expedite the conclusion of the transaction, Eddie offers Georgina a substantial commission on all purchases made by the partnership. Georgina signs a contract for the purchase of the timber and is forthwith paid a commission of $2 000. She uses this money to reduce her mortgage.
a. Discuss the validity of the contract entered into by Georgina
b. What remedies (if any) are available to Elizabeth and Sarah?
A partnership is a kind of unincorporated business association in which several individuals, termed as general partners control the company and are equally responsible for debts incurred; we also have other persons termed as limited partners, these kind of partners may invest but are not directly concerned in administration and are only accountable to the degree of the money investments in the company. Unlike in a Limited Liability company, in partnership all partners allocate equal liability for the partnerships debts and liabilities and its proceeds and losses. The partnership on its own does not forfeit income duty; however, each associate has to give a report on their share of business dealings on each person tax return. Approximated tax expenses are also essential for all of the associates for the year as the business continues. The two vital types of partnerships are : limited partnerships and general partnerships In this instance , we are uncertain of the type of partnership. Though, by supposition, we should take it at as a general partnership. In looking at the information given in this situation it is obvious that the matter lies on the partnership associations to a third party in carrying out its business1.
In any form of business partnership, the associates have individual Liability, in that the Partners in person are legally responsible for all partnership’s debts and responsibility, including Court verdicts. It therefore implies that if the partnership itself is unable to pay a creditor, for Example a contractor, property-owner or lender, the creditor has the power to legally come after any associates personal belongings or other assets. Besides that, any individual Associates can usually join the whole partnership to an agreement or other business deals. For Example, if an associate signs a contract with a dealer to buy stocks at a cost that the partnership can't meet, the associate can be held individually answerable for the cash owed in accordance with the agreement. There are a few confines on an associate capacity to commit the partnership to a contract for instance; one associate can't attach the partnership to a deal of all of the company properties. But generally, unless a foreigner has grounds to be acquainted of any limits the associates have been located on each other’s power in their partnership agreement, any associate can bind the rest to a deal. Each person can be charged and therefore obligated to settle the whole amount of any partnership debt. If this occurs the associates only alternative may be to bring a claim against the other associate for their shares of the liability. Because of this union of individual liability for all partnership debt and the right of every associate to bind the partnership, it's significant that you have confidence with the persons whom you starting your business consequently, in this incidence Georgina acted different to the partnership contract which permits each associate to go into an agreement, on behalf of the company, up to a maximum amount value of $1 000. She got in a contract with Eddie of a sum of $25000, $24000 exceeding the required maximum, thereafter, gaining $2000 which she made hers.
According to section 30 of the partnership act 1963,” A partner in a firm is not entitled to remuneration for acting in the business of the firm’. By getting this money. Georgina acted in bad faith contrary to the duties of partners in a partnership as stated in section 9 of the same act.
Section 9 of the partnership act 1963 also states that “An act done by a partner in a firm other than an incorporated limited partnership, for carrying on in the usual way business of the kind carried on by the firm, binds the firm and the other partners in the firm unless (a) the partner who does the act has in fact no authority to act for the firm in the particular matter; and (b) the person with whom the partner is dealing either knows that the partner has no authority or does not know or believe the partner to be a partner in the firm2”. Georgina has no authority to transact with Eddie on behalf of the partnership since the agreement only authorizes the partners to do business of up to $1000. Therefore, as the above law states, the partnership is not liable to any misgivings nor does it recognize the contract. In another words, the Georgina- Eddie contract is invalid.
In case of violation of the partnership by any of the associates, the other associates have the options of allowing the persons concerned to continue being an associate in the company or may face banishment for breaching the company’s agreement. The resolution will be concluded in harmony with the company’s agreement. However, if the company agreement is quiet then, the disagreement will be determined by the innocent partners voting in absence of the erring associate to stay away from any influence on the other partners.
Question 2
Pinnacle Pty Ltd [PPL] was incorporated in March 2000 with a capital of $2, divided into 2 shares of $1 each. The only shareholders of PPL are Michael and Georgina Jones, who each own 1 share in the company. They are also its directors.PPL carries on business as trustee of the Jones Family Trust, a discretionary trust. The beneficiaries of the Jones Family Trust are Michael, Georgina and their children Elizabeth, aged 8 and Tyrone, 6.Pinnacle Pty Ltd has incurred trade debts amounting to $150,000 in the course of its trading activities. Trust assets amount to $50 000, but Michael has a substantial personal fortune. In view of this, the creditors are threatening to sue Michael to recover the monies owing to them.
DISCUSS whether the creditors can take any action to recover their debts from Michael
A company is a type of business organization. It is a union or collection of individual who each give some kind of capital. The group normally has a common function or focus and it’s usually aimed at making profits. This union, collection or association of individuals can be formed to exist in by law and therefore a company on its own is considered a legal person. The name company came up for the reason that, at first, it stood for or was held by more than one actual or official individual. In the Commonwealth realms and English law a company is a corporation listed in accordance with the Companies Acts or related legislation. Hence it does not contain any other unincorporated collection of individuals or a partnership, although sometimes such an entity could be loosely depicted as a company3.
There are a number of companies recognized. They comprise: a company limited by guarantee; these companies are made for non-commercial reasons with a few of these kind being charities or clubs. The associates guarantee the imbursement of a guaranteed amount if the corporation falls into insolvent bankruptcy; however, they have no financial rights regarding the corporation. The second form of company is a company limited by shares. This is the most widespread type of company and it is usually meant for business projects. Under this type, there is what is known as limited company. This is a company in which the liability of each shareholder is limited to the amount individually invested. The third one is Companies limited by guarantee by means of share capital. This is a hybrid unit wherein the company is made for non-commercial intention, but the activities are partly funded by investors of the company who look forward to a return (profit). This form of company possibly will not be created in the UK, even though stipulations for these still exist in law for them to subsist4.
The acronym “Ltd” subsequent to the corporation's name indicates limited company. In this question the company of concern is Pinnacle Pty Ltd [PPL], which by its name it is a limited company. Since its members are known as shareholders, it is a company limited by shares. The major assumption is that we have not been told if it is a L.L.C. Therefore by the assumption, it is that it is a company limited by shares. This denotes that the corporation has shareholders, and that the shareholders liability to the company creditors is limited to the capital initially devoted5, that is the shares nominal worth and every premium paid in response for the shares issue by the corporation. A shareholder's own assets are thus sheltered in the occasion of the corporation's liquidation, however capital invested in the corporation will be lost. Going by this fact, Michael and Georgina Jones as shareholders are not liable to be sued by creditors since they are protected.
It is as well an additional fact that corporation directors have a lawful responsibility not to earn liabilities in their corporations which they have cause to suppose the corporation might not be capable of paying. If creditors mislay money by means of director deception, the directors' own liability is devoid of limit. However, in this case, we have not been told that the directors were fraudulent; therefore both Michael and Georgina ought not to be liable for the creditor loses. In addition, reading from Section 282 of the Companies Act, 1908, it states that : " If any person or persons trade or carry on business under any name or title of which ' Limited ' is the last word, that person or those persons shall, unless duly incorporated with limited liability, be liable to a fine not exceeding five pounds for every day upon which that name or title has been used6." We have not been told that the Michael and Georgina are not duly incorporated with limited liability. This only means one thing; we assume that they are duly incorporated by limited liability thus not liable to the debts incurred by the company.
However, the PPL Company acts in the capacity of a trustee of a trust, Jones Family Trust. Therefore as Section 197 states ,For the director to be liable under these provisions, the following general circumstances must be present:(a) The company must be acting as a corporate trustee of a trust; (b) There must be an unpaid trust debt in the name of the company that was incurred while the company was acting as trustee of the trust;(c) The company must not be entitled to be fully indemnified against the liability out of trust assets (even if there are not sufficient assets) because of one or more of the following: (i) a breach of trust by the corporation; (ii) the corporation's acting outside the scope of its powers as trustee; (iii) a term of the trust denying, or limiting, the corporation's right to be indemnified against the liability7.
A key factor is that the corporate trustee, PPL, cannot be permitted to be covered from the trust assets. If the corporation does have a complete protection this segment will not be relevant. On the other hand this will not eradicate a possible claim for in debt trading. The section continues and enacts that the director is by design liable when (1) A person who is a director of a corporation when it incurs a liability while acting, or purporting to act, as trustee, is liable to discharge the whole or a part of the liability if the corporation:(a) has not, and cannot, discharge the liability or that part of it; and (b) is not entitled to be fully indemnified against the liability out of trust assets. This is so even if the trust does not have enough assets to indemnify the trustee. The person is liable both individually and jointly with the corporation and anyone else who is liable under this subsection. This section also claims that the amount is equal to the amount of the debts that are in the name of the corporate trustee and cannot be met from the assets of the trust8.
Following these facts, I conclude that Michael is liable and the creditors can take any action to recover their debts from Michael, so long as the claims is equal to the amount of debts that are in the name of the corporate trustee.
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