Question

Instructions:

• Answer the following questions, citing relevant legal authorities (law and cases) in support of your answer. Answers not supported by any legal authorities will not receive any credit.

• Legal problem-solving questions must be answered using the IRAC (Issue, Rule, Application and Conclusion) method taught in class.

• Reference sources must be cited in the text of the report (either in-text or footnotes, AND listed appropriately at the end of the assignment in a Reference List following the AGLC (Australian Guide to Legal Citation) style. • Failure to cite references when reproducing the work of someone else without attribution amount to plagiarism. Please read the attached Academic Integrity Policy for further guidance.

• All work must be submitted on Blackboard by the due date along with a completed Assignment Cover Page.

• Word counts for each answer are indicated after the question. Word count limits are strictly enforced. A deduction of two (2) marks will be imposed for every 50 words over the word count for either part of the report. Anything over the word count will not be read by your lecturer.

Question 3

You have been approached by some clients for advice about whether they should form a public or proprietary company for the purchase of a multi-million-dollar petroleum distributorship. What factors would you take into account when offering the clients advice?

(Maximum 450 words)

Answer 1

Following factors would be taken into account whether to form a public or proprietary company for the purchase of a multi-million dollar petroleum distributorship:

· Taxability: The foremost factor that comes up will be the taxability issue on the purchase of a company and also afterwards then. As the taxability and the deductions are different for a public and proprietary concern, it is important to prepare a comparative analysis that will identify the company nature in which tax saves the most

· Financial Stability: Purchasing a million dollar company requires a huge capital and that too in petroleum business. In proprietary concern, the promoters should be backed by sufficient means of finance. And in public company the, the finance can be raised from general public through public offer.

· Investors: In case of public company, the funds can be raised through public offers so that there is no dependency on investors while in case of proprietary concern if the promoters are not backed sufficient means of finance then investors need to be find out and then there will be dependency on the investors.

· Political Factors/Government: Since it is a petroleum distribution the interference of government and political parties will always be there. So there may be restrictions or concerns will be raised by the relevant political parties if the company is formed under proprietary concern, While if in the case of public company, it is possible that certain holding is hold by the government to ensure the compliance and other things.

· Ownership: In case of public company, depending upon the stake offer to public company, remaining ownership lies with the promoter. That means the stake of the promoters will be diluted and certain decisions will required consent of all and the decision making power will be restricted from the hands of the promoter. However, in case of proprietary concern, 100% of the ownership lies with the promoters and whole decision making power is taken by the promoters only.

· Legal: Legal compliance would be also different for both a public or proprietary company. A public company had comparatively higher number of compliances with respect to legal obligations as compared to proprietary concern. Such factor also needs quite high attention.

· Risk of Failure: In case of proprietary concern, if the business fails because of any reasons be it any internal factors or external factors, the whole loss is to borne by the promoters themselves. However, in public company case, such loss is restricted to a certain extent and will be distributed among whole shareholders.