Federation Business School
Assignment BULAW 2611
Semester 2 2015
Due date and arrangements for submission: See details in Course Description
Length and requirements: 1500 words (as a guide). For other requirements, see details in Course Description
This assignment has two questions. You should attempt both. The mark allocation (out of a maximum total of 30) is indicated at the bottom of each question.
1. Business can be conducted via a range of forms, including sole traderships, trusts, partnerships and companies (or corporations). All of these have different implications when it comes to management and governance, both in terms of who is responsible and also to whom such governors/managers are accountable.
Required: For any two of these organisational forms, discuss those implications. (10 marks)
2. Sona and Sam Kass run a successful boat hire company, Free Spirit Pty. Ltd. They are the only shareholders and executive directors. Sona is also the Managing Director. When they set the company up in February 2009 they invited an accountant friend of theirs, Tim, to be the non-executive finance director. Tim insisted that the Managing Director have the capacity to bind the company to contracts worth less than $50,000 only. This limitation was written into the company’s Constitution.
Recently Sona saw a great deal being advertised on a new sailing boat that would carry up to 10 people. She had been thinking lately that the business would be more competitive if it had boats that could carry more people so she decided to take the risk and buy the new sailing boat.
Sona cannot contact Sam because he is in a remote location. Tim’s phone is turned off. Sona went to the company’s bank and arranged a loan for $180,000 to buy the boat. She knows the bank staff as she always does the weekly banking. Sona signed the loan documents as ‘Director of Free Spirit Pty. Ltd.’.
When the bank’s accountant asked for another director to sign as well, Sona explained that this was not possible as both Sam and Tim were unavailable and the deal was urgent.
The bank’s lending officer was reluctant to approve the loan as it was a large sum for the business but Sona convinced him it would be OK.
When Sam returns from his trip he is horrified to find out what Sona has done as the business was actually in financial difficulty. At a meeting with Tim, it is decided that the company would argue that the contract was not valid as Sona had no authority to make it.
Required: Discuss whether or not Free Spirit is bound to the contract made by Sona. To support your answer you should refer to relevant statutory and case law. Do not discuss Directors’ Duties. (20 marks)