The Importance of Commercial Law for Businesses

Question:

Write an essay on the “Company and Commercial Law”.
 

The company and other organizations must adhere to the commercial law as stipulated or else face various fines and other consequences. The rights of various individuals who take part in several businesses are protected by the law. It ensures that the persons are not mistreated while they engage in numerous businesses. The trading of the goods and services should be done in an appropriate way to ensure that every person is satisfied with the trade. The conduct of persons taking part in the business is also monitored by the Commercial Law. It is a mandate that the people follow the rules to ensure there are no complications. The smooth running of the enterprises is vital and for the growth of the economy of a state. The businesspersons are expected to act accordingly and report any misconduct associated with businesses taking place. The court of law ensures that one gets the justice after presenting the matter before the judges and with substantial evidence. The discussion outlines the business structures, shareholder rights and the corporations act.

What type of legal business structure is Denise and Freda currently operating?  Provides reasons

Denise and Freda are operating a partnership business structure that is owned by two or more people. They have been in the business for over five years and have shared the earned profits equally. It has some similarity with the sole proprietorship that is operated by an individual and the persons do not need to file any documents or pay any fees for it to take place. Each individual is expected to report their share of the profits of the enterprise on their personal taxes as the income. Moreover, all the persons are liable for the debts, claims and any liabilities that the organization has to meet (Sheedy, 2011). The type of structure is ideal for the small businesses because the issues that regard the personal liability are not a primary concern. Denise and Freda have been operating the café and serving the customers together for a long period. However, they have been in the dilemma of lacking enough capital to keep the café running and joining another partner in their business. The individuals need more funds so as to rectify the slippery floors that have not been friendly to the customers as they have been falling off and breaking their legs. The injuries have also affected the business as many people will try to avoid the café due to its condition. It is the role of Denise and Freda to manage the café as they own it and share the costs (Shade & Epstein, 2003).

On the other hand, the current business structure is the most suitable for the café as it is a small business. It enables easy management as only the two individuals are involved in the process of managing all the activities taking place. They should not change the structure at the moment and should maintain it and ensure that it grows rapidly. They should be keen in all the processes and minimizes the losses for them to earn more profits. In addition to that, the café should be renovated and designed well so as to attract more customers. The additional funds they require they should obtain a loan from a local bank to help them fix the issues they need (Gitman & McDaniel, 2008). The loan will be helpful to enable keep the café running and also improving their services. The other important thing, is that they should lay down the strategies that they need to follow. Moreover, the goals and objectives of the café should also be clear and they should work hard to ensure they achieve them. They should also advertise their café services on various platforms to create awareness to the public. It will ensure that they gain more customers and that will increase their sales and the profits. The loan will be repaid in a short span if they take the matter seriously and be committed to their job. The clients should also be served with respect and dignity to ensure that they opt for the café every time. Several offers should be given out from time to time as a sign of giving thanks to the customers for their support (Messenger et al, 2008). 

Understanding Partnership Business Structures

Discuss any liability of the directors of TBC Ltd in relation to these events.

The board of The Best Coffee Ltd is comprised of four directors and one of them is a non-executive director. The organization is large and has been listed on the Australian Stock Exchange due to its good progress. However, it has engaged in various investments that have been losing large sums of money and have not been reported and the financial statements have been prepared. The directors have various responsibilities that they should exercise from time to time for the benefit of the company. First of all, they are supposed to act in accordance with the powers that are stipulated in the organization’s constitution. They have to utilize the powers for the purposes that they were conferred and not any other. Some of the directors have a tendency of misusing the powers and using them to use the company resources for their benefit. They should be used to help the company grow rapidly and also meet its goals and objectives. The organization should be organized to the level best and the director should ensure that all the activities are running smoothly as expected (Anderson, 2008).

Secondly, one should promote and ensure the success of the organization for the benefit of all its members. The rapid growth of the company is important to increase its profits and ensure that all the involved highly benefit from it every time. They should ensure that the productivity of the company is maintained at all costs. The workers should be motivated to work and a friendly environment provided to enable them work diligently. The motivation is essential in any institution to give the employees the morale to improve their output. Thirdly, it is upon them to exercise their independent judgment on various issues affecting the company. They should evaluate and make several comparisons so as to make a critical decision that will be beneficial to the enterprise. All the activities should be monitored and the places that need change to increase productivity should be given the priority. Fourthly, the individuals should employ reasonable care, skill and diligence as they perform their day to day tasks. The powers they have they should utilize them in the correct manner and also allocate duties to the employees and other persons using the knowledge and skills they have gained. Through this the enterprise will run as required without any complications (Campbell & Campbell, 2007).

The fifth is that they should always avoid the conflicts of interest so as to ensure the motivation of the individuals or company is not corrupted. The concerned persons should come to a conclusion on a common interest that they should pursue and that which needs priority. The management of the institution will be easier to undertake when there is cooperation among the directors. The sixth is that they should never accept any benefits from the third party individuals. The idea may bring laxity in the company or collapse as they will use the weakness of the organization to their advantage. The information of the enterprise should remain confidential at all times for security of the company and its future. The third parties are not always trustworthy in the businesses and may bring in various investments or decisions that are not productive but to ruin the organization. The directors have the liability to execute their duties as they are required and without violating them (Mathias, 2000). 

Strategies for Growing a Small Business

The breach of any law relating to the Corporations Act that regards the duties of a director has various consequences. First of all, an individual who is guilty of any criminal offence is penalized a maximum of two hundred thousand dollars or be incarcerated for up to five years. Moreover, the court of law can impose both of them on a person depending on the offences that one has committed. Secondly, a person is banned from managing a company the entire or a period of several years. It serves as a punishment for one to be disciplined and also sets an example to other people who have such motives. The persons are prohibited to administer an institution for a period of ten years or above depending on their mistakes. It is upon the individuals to ensure that they protect their positions by carrying out their duties and responsibilities as stipulated. Thirdly, contravening a civil penalty provision a penalty of over two hundred thousand dollars may be imposed on an individual. Lastly, one may be personally responsible to compensate the organization or other persons that have suffered any loss or damage. The directors should at all-time not contravene the Corporations Act for the smooth running of their life and that of an organization (Rosenthal, 2012).

A shareholder is a team, person or an organization that owns various shares in a company; it can be one or more. The privileges and rights are governed by the law that is stipulated in the country where the company is headquartered. The persons that own the common shares of a particular company stock are termed as the real owners of the corporation. Rick had purchased two shares that worth fifty thousand dollars from R Us Pty Ltd.  He became a non-executive director but is not contented with the state of affairs of the company. The shoes company revenue has been increased by three hundred percent and he has not received any dividends. Rachel and Tanya have declined to pay the dividends as required. Moreover, they have voted themselves to get a huge pay rise and several bonuses and arranged to lease the most expensive cars for their personal use. However, after the first meeting, he his removed from the board due to his questioning of the dividends and objecting the lease of cars for exclusive use (Miller & Jentz, 2010). 

In addition to that, Rick has a number of rights as a shareholder of the R Us Pty Ltd. First of all, he has the right to share in profitability as long as he owns the shares. The dividing of the profits’ that have been earned by the company takes place depending on the shares that an individual has over a period of time. The shareholders have the rights to the revenue distributions that is done through dividend payments. The board of directors has the responsibility to declare the dividends in a particular period. Afterwards the shareholders should be able to receive them depending on the company rules. Moreover, they are not guaranteed and if the organization is liquidated, the common shareholders have the right to the assets and income of the institution. It is after the bondholders and the shareholders that have been preferred have been paid. Secondly, Rick has the right to control the management as he can vote during the elections of the board of directors. Among the small companies, the chairperson of the board is the individual who has the largest shares. The shareholders have the right to influence who heads the management posts through the elections (Varrenti et al, 2011).

Director Responsibilities: Duties and Obligations

Thirdly, Rick has the right to buy the new shares after they are issued to the public by the company. They also have the pre-emptive rights that are valuable and are provided at certain price through subscription per-share basis. The current shareholders in the organization are given the privilege to buy a certain number of shares before the new ones buy them. Lastly, he has the right to vote in the organization’s annual meetings. The common shareholders voting rights are equal to one vote per the share that one owns and it greatly influences the individuals with large shares. The persons who feel their rights have been violated they got the right to sue the company. The court of law has the powers to enforce the shareholders rights when the companies have violated them. The management of the company should ensure that they do not violate the rights of the shareholders at all costs or face the law. Moreover, every shareholder should be given the chance to vote in the general meetings and there should be no favor. However, when an organization is sued in the court of law it can face heavy fines due to its misconduct. It can also face other penalties depending on how it has been carrying out its activities (Varrenti et al, 2011).

It has various sections that outline the laws that the people need to follow in the organizations. Under section 180(1) the directors of any company have the duty to act with care and diligence in respect to the size of the enterprise. However, in section 180(2) some defenses are outlined in regard to the decision made under various circumstances even though it does not fit the corporation. It is supposed to be adhered to by the directors of the companies without fail. The organizations rely on the decisions of the top managers for its success and running the day to day activities. The bad decisions that a manager makes lead to the collapse of the company or incurring huge losses that take time to be recovered (Cseti, 2010). The strategies that are vital should be laid down by the management to ensure that the company meets its set goals and objectives in the future. All the processes that help the organization increase its productivity should be given the priority and be adhered to for it to earn more income and hence more profits. The individuals differ in their management way and every person has his or her own way of managing an enterprise. However, they have the objective of increasing the outputs and ensuring that the productivity of an organization improves rapidly. They should be careful in the strategies they implement to ensure they do not bring losses to the company (Tomasic et al, 2002). 

However, so as to establish the defense a director must satisfy the following criteria under section 180(2). First of all, they should make a judgment in good faith and for the best purpose. It ensures that they have exercised their powers in the correct manner even though the judgment has other negative consequences. They should select the proper purpose that is intended for a particular judgment to take place. Secondly, one should not have any material or personal interest regarding the judgment made. The director should focus on the interest of the company so as to make it progress and attain its goals. Using the criteria to make any judgment ensures that a director defends himself in case any issue arises. Thirdly, they should make themselves aware about the subject matter of the rule to the extent which they are sure of it to be appropriate. They should make sound judgments that they believe are the best for the company and its ultimate progress. The criterion helps in the defense of the directors in case any unexpected outcomes prevail. The appropriate decisions are vital in any enterprise and help it achieve the stipulated goals and objectives. Lastly, they should logically believe that the decision they make is in the ultimate interest of the organization. It should be reasonable for it to be implemented and become successful to the company. It is upon the director to ensure that he or she believes that the decisions they make are rational and good for the company (Cassidy, 2006). 

The section 180(2) does a good job in protecting the directors in making the business decisions. It gives the directors the motivation to make decisions as they are aware they are protected in case anything happens after the decision is implemented. Several decisions go wrong after they are made and had been well outlined by the directors. The logic in the decisions helps defend the director from any consequence after the decision fails. The companies highly depend on them and if anything happens they should be held liable. The directors should be well protected and their activities monitored to ensure they act accordingly. 

Conclusion

In conclusion, the Corporations Act plays a greater role in outlining the laws that should be followed by various organizations and individuals. It outlines the duties and responsibilities of the directors and also their defenses. On the other hand, the shareholders have their rights in a company and the board of directors should not oppress them. The violation of their rights is against the law and one can face heavy fines if found guilty of the offence. However, there are types of business structures and it is upon an individual to choose the best that suits the business one is operating. Every structure comprises of its own characteristics and requirements that must be met for it to be successful.  

References

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Anderson, H. (2008). Directors’ personal liability for corporate fault: A comparative analysis. Alphen aan den Rijn: Kluwer Law International.

Cassidy, J. (2006). Concise corporations law. Annandale, N.S.W: Federation Press.

Cseti, D. (2010). Understanding personal property securities law. Sydney: CCH Australia.

Clough, J., & Mulher, C. (2002). The prosecution of corporations and their officers. Melbourne:Oxford University Press.

Campbell, D., & Campbell, C. T. (2007). International liability of corporate directors. Salzburg,Austria: Yorkhill Law Pub.                    

Epstein, D. G., Freer, R. D., Roberts, M. J., & Shepherd, G. B. (2015). Business structures. St. Paul, Minn: West Group.

Gitman, L. J., & McDaniel, C. D. (2008). The future of business: The essentials. Mason, OH:Thomson South-Western.         

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