Business Structures in Australia

Describe about the Corporate Law which is Applicable on Business Structure.

In the given case, the best business structure applicable to Jack, Jill, and Max has to be advised.

In Australia, there are several business structures that can be selected by an interested party. These include, sole proprietorship, partnership, corporation, and trust (Department of Industry Innovation and Science, 2016). A sole proprietorship, as the name suggests, is a business structure which is operated by a single individual. In this structure, the person is his own boss and the employee. The two disadvantages of a sole proprietorship include the lack of adding a partner/member and the provision of unlimited liability.

To deal with the disadvantages of sole proprietorship, the business structure of partnership is available for a person. In partnership, there are two or more people, who contribute to the capital of the business and share the profits (or losses) as per the partnership deed. All the partners work towards the growth of the business and hence provide a wider set of human capital which proves beneficial for a business. But even partnership has the clause of unlimited liability. And so, in case of a debt, the personal assets of the partners are contributed for payment of such debt. In New South Wales, Australia, the Partnership Act, 1892, is applicable (New South Wales Legislation, 2016).

The next option of a business structure is the corporation. A corporation is an independent separate entity from its owners. It has the powers to sue and be sued by the owners. This structure has no provisions of unlimited liability. Further, the funds can be easily raised from the public and the growth of the company can be ensured due to the abundant capital. The only disadvantage of a corporation/company is the applicability of various provisions, which at times act as a hurdle, in running of the business (Tomasic, Bottomley and McQueen, 2002). The Corporations Act, 2001, is applied on the corporations in Australia (Australasian Legal Information Institute, 2016).

Another form of business structure in Australia is a trust on which the Australian Trust Laws are applicable. Forming a trust is a complex process and often disregarded as a business model due to its inherent disadvantages (Australian Taxation Office, 2015).

In the given case, the business of Jack, Jill, and Max of selling trucks is very successful and is growing strong. They are in need of a more appropriate structure. It is recommended to Jack, Jill, and Max to opt for a corporation form of business structure. The reason behind this recommendation is that their business is growing rapidly. A growing business requires capital for its continued growth. By establishing a corporation, they can raise capital from the public. Secondly, Jack, Jill, and Max are three separate individuals and would prefer a limited liability to the unlimited liability. Disagreements is a major probability in partnership and results in dissolution of partnerships. Further, the default rule of partnerships is that a person cannot transfer its holdings in partnership to another without the consent of all partners. So, if Jack, Jill, or Max wants to transfer their holdings, they would not be able to do so in a partnership, whereas in a corporation, the shares of the company are freely transferrable. 

Recommendation for Jack, Jill, and Max’s Business

This recommendation is also based on the fact that the company runs in perpetual succession where the death of the shareholders and members does not affect the affairs of the company. But in a partnership, the death of partners leads to a dissolution of the partnership.

Analyzing these advantages of Corporations in reference to partnership draws the conclusion that, Jack, Jill, and Max should opt for a Corporation as their business structure.

2. In this case, the first issue is whether Child Toys Pty Ltd has any corporate liability because of Betty’s action.

Vicarious liability is the liability which arises from the relationship of an agency, principal and a third party. In vicarious liability, the employer is held liable to the third party for an act done by the employee. Employers are also liable for the negligent acts and/or omissions by their employees during the tenure of employment. The person has to be an employee and not an independent contractor, as was distinguished in the case of Hollis v Vabu [2001] 207 CLR 21 (High Court of Australia, 2001). In one of the latest case of Blake v JR Perry Nominees Pty Ltd [2012] VSCA 122, the employer was held vicariously liable for the actions of its employees’ (Alderman, 2012). Further, the common law also holds the employers liable on the basis of qui facit per alium facit per se. This concept is parallel to the concept of vicarious liability.

The Australian Consumer Law contains the provisions regarding the unfair practices which contain any deceptive or misleading conduct, unfair contracts and unconscionable conduct, product safety and information, product liability. Further, ACL, through its Section 18 forbids the conduct of business in a manner which misleads the consumer or is deceptive or misleading or is likely to result in a deception. Similar provisions are provided by the Fair Trading Act, 1987, in the matter of deceptive and misleading conduct of businesses. Remedies under these acts are provided with the objective of protection of the consumers and are awarded in the form of fines and damages.

In the present case, Betty was a salesperson in Child Toys Supreme Ltd. Betty had promised some customers that the toys were safe and contained no harmful plastic chemicals. Here, a clear deception in the conduct of business is established. To further prove the deception in this case, a reference should be made to the case of Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] (Burrows, 2014).

Further, a child was seriously injured because of the harmful chemicals in the toys. This would give rise to a civil liability under the civil laws instead of the criminal laws. A deliberate evidence is absent in this case to hurt the child, as was held in case of Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 at 5 and later in case of Samaan bht Samaan v Kentucky Fried Chicken Pty Ltd [2012] NSWSC 381 (White and Latta, 2015). So here, Betty is liable for civil penalties as per the Part 2 of Civil Liabilities Act, 2002.

Vicarious Liability and Australian Consumer Law

Betty, being the employee of Child Toys, fulfills the criteria of vicarious liability and qui facit per alium facit per se. This means that Child Toys is liable for the acts of Betty and is responsible for remedies under the common law, ACL, Fair Trading Act, and Civil Liabilities Act (Latimer, 2012).

So, from the above analysis of this case, it can be concluded that indeed it is the corporate liability of Child Toys for the deceptive conduct of Betty.

The second issue in this case is the possible legal actions which can be taken by Child Toys Pty Ltd against the actions of Charles.

Division 1 of the Corporations Act 2001 contains the general duties of an officer or employee of the company (Australasian Legal Information Institute, 2016). An officer or employee of the company should not use the position in the company, so as to gain an advantage for themselves or for someone else, and also have to ensure that the information is not used in a way which is detrimental to the company as a whole (Section 182). Section 183 contains that a person who is in possession of sensitive information, as a result of being an officer or employee of the company, regarding the company should not use this information so as to gain an advantage for themselves or for someone else and also have to ensure that the information is not used in a disadvantageous way for the company. A contravention of these sections invites civil penalties stated under the section 1317E of this Act.

The Australian Contract Law is applicable on any contract which is drawn in Australia (Andrews, 2015). Contraventions to these laws provide remedies to the aggrieved party in form of monetary and equitable damages. Further, the Competition and Consumer Act, 2010 promotes competition and fair trading for protection of consumers so as to boost the wellbeing of Australians. Civil penalties are awarded for the contravention of the provisions of this act.

In the given case, Charles had been an officer of the company and had access to the sensitive information relating to Child Toys. After his retirement, he used this sensitive information for the benefits of his new business. His employment contract clearly stated that he was not allowed to compete with Child Toys for a period of two years. He violated such contract and attracted not only the civil liabilities under the Australian Contract Law, but also as per the Competition and Consumer Act, 2010. A landmark case in this regard is Globe and Mail v. Communications, Energy and Paperworkers Union of Canada (Page, 2014). Civil penalties were awarded for a breach of employment contract in the matter of Hopkins and another v South Manchester Abbeyfield Society Ltd [2011] All ER (D) 72 (Mar) (Pay and Benefits, 2011).

So, it can be concluded that Child Toys Pty Ltd can take necessary civil actions against the actions of Charles.

References

Alderman, P. (2012). When are employers responsible for the actions of their employees? [Online] Lexology. Available from: https://www.lexology.com/library/detail.aspx?g=3b5b6a89-4da4-4f95-84a6-13644309d92b [Accessed on 14/09/16]

Andrews, N. (2015) Contract Law. 2nd ed. UK: Cambridge University Press.

Australasian Legal Information Institute. (2016) Commonwealth Consolidated Acts: Corporations Act 2001. [Online] Australasian Legal Information Institute. Available from: https://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed on 14/09/16]

Australian Taxation Office. (2015) Trust. [Online] Australian Government. Available from: https://www.ato.gov.au/Business/Starting-your-own-business/Choosing-your-business-structure/Trust/ [Accessed on 14/09/16]

Burrows, M. (2014) Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Limited [2014] FCA 634. [Online] Dundas Lawyers. Available from: https://www.dundaslawyers.com.au/australian-competition-and-consumer-commission-v-coles-supermarkets-australia-pty-limited-2014/ [Accessed on 14/09/16]

Department of Industry Innovation and Science. (2016) Business structure. [Online] Australian Government. Available from: https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure [Accessed on 14/09/16]

High Court of Australia. (2001) Hollis v Vabu Pty Ltd [2001] HCA 44. [Online] High Court of Australia. Available from: https://eresources.hcourt.gov.au/showCase/2001/HCA/44 [Accessed on 14/09/16]

Latimer, P. (2012) Australian Business Law 2012. 31st ed. NSW: CCH Australia Limited, pp 358-361

Page, L. (2014) The Globe and Mail Prevails in Dispute with Jan Wong over Breach of Confidentiality. [Online] CanLII Connects. Available from: https://canliiconnects.org/en/commentaries/32604 [Accessed on 14/09/16]

Pay and Benefits. (2011) Employment Case Law: Breach of contract. [Online] Pay and Benefits. Available from: https://www.payandbenefitsmagazine.co.uk/article/employment-case-law-breach-contract [Accessed on 14/09/16]

Tomasic, R., Bottomley, S., and McQueen, R. (2002). Corporations Law in Australia (2nd ed.). NSW: Federation Press.

New South Wales Legislation. (2016) Partnership Act 1892. [Online] New South Wales Government. Available from: https://www.legislation.nsw.gov.au/#/view/act/1892/12/whole [Accessed on 14/09/16]

White, S., and Latta, M. (2015) A guide to food poisoning claims. [Online] Carter Newell Lawyers. Available from: https://www.carternewell.com/page/Publications/2015/A_guide_to_food_poisoning_claims/ [Accessed on 14/09/16]