Question

a) Describe and discuss the different types and classifications of companies based on their liability. What type of company structure would you adopt in the following situations:

 Having successfully run a local coffee shop for years, you now wish to expand your business and have two additional coffee shops in two new locations;

 You are a sugar farmer and wish to form an entity to advance the position of all sugar farmers;

 You are a mining magnate who is interested in exploration.

b) ‘In this lecture, I have chosen to canvass a topic that has been the subject of intense discussion for a long time, but which remains fascinating and in significant parts unresolved. That is the problem of the “veil” – to what extent can courts look behind legal structures…in determining the disputes before them? The topic of piercing the veil has been described as an “unprincipled”…area of the law’ (Hon Chief Justice M Warren AC ‘Corporate Structure, the Veil and the Role of the Courts’ (2016) 40 MULR 657 at 659.) Critically discuss this quotation, paying particular attention to, eg, the James Hardie dispute. Do you agree? Analyse the situations under which the courts have pierced the veil and situations under which they have refused to do so. What are the themes?

Answer 1

On the basis of liability, the company may be classified infollowing:-

1). companies limited by share - a company where liability of members is limited to the unpaid amount of shares held by them is called company limited by shares. In the event of winding up of the company, a shareholder will be asked to pay only the unpaid amount on the shares held by them.

2). companies limited by garantee - company in which the liability of each member is limited to such amount which the members undertake to contribute to the assets of the company at the time of winding up of companies. the amount payable is the amount unpaid on shares of members plus the amount payable on garantee. the amount garanteed is laid down in the memorandom of association. this type of companies is formed for sports, charity, etc.

3). unlimited company - company having no limited of amount payable by members during winding up of company. in case of more loss during winding up, company can call members to pay losses through their personal liability.

capital structure on the basis of following statements :-

1). in case coffee shop want to expand its business, they have to use divisional structure for better athorisation , as this ensures a proper manager for a particular division and can reduce workload on one person alone

2). a suger farmer can use simple structure in the entity because one entity is formed with one supervisor, there is no delegation of authority, this helps one person control over entity and ensures success.

3). in case of mining exploration, does not need any kind of structure. you only need a exploration skill which only undertakes over less persons.

peircing of corporate veil

the corporate veil is a concept which seperates the identity of the compnay from its members peircing of corporate veil is when court ignore the company and concern themselves directly with the members, this involves question of control rather than ownership.

in case of James Hardy there is no common, unifying principle , which underlies the occasional decesion of court to pierce the corporate viel.

Generally, court pierce the corporate viel in case of affecting public interest, government interest, and avoiding any legal obligations. some of the examples are :- enemy companies , forming subsidiary company to act as agents, to protect tax or revenue.

court may not pierce the corporate veil when, it considers the evidence that there is no role of members of company in case of fraud.