Professional Documents
Culture Documents
Corporate Law Scenarios
Corporate Law Scenarios
Limited Partnership
personal guarantees for loans entered into, which could limit some of the
benefits of a corporate structure.
Setting up a corporation also requires a lot of administrative costs in order
to comply with the Corporations Act 2001, which is complex and may
require professional assistance. A corporation is also expensive to set up
at the outset compared to other types of structures.
A company is also a lot less linked to the business owners. This is an
advantage, for the limitation of liability as mentioned above, but can also
cause several problems. A company structure has a lot less means
control over a companys business than sole traders or partners do and
must use its assets for a company purpose and not a personal one. The
effect of these types of limitations will differ depending on the type of
company that Julia and Kevin wish to engage in and the way that they
want to run it.
Trust
A trust is a more complex type of structure but certainly has many
benefits. Most of the benefits of a trust structure are tax benefits.
However, there are also other benefits similar to those of a company
structure. Firstly, the business assets in a trust are sheltered from the
personal bankruptcy of one of its beneficiaries. If a corporate trustee is
used then there is a limitation of liability.
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Discretionary Trust
Family Trust
Unit Trust
A unit trust is distinct from a discretionary trust in that the profits of the
trust, rather than being divided between
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Corporate Trustee
(relatively) difficult to setup, and also the most expensive to set up,
however it offers many advantages. Obviously there are the potential tax
advantages, but this type of structure also offers a large degree of asset
protection, with both the corporation and the trust structure helping in this
regard.
Part II
B. Advise Kevin and Julia on the issues to consider in purchasing the
business assets as opposed to the shares in John Pty Ltd. 500
There are advantages and disadvantages when buying assets of a business
instead of buying shares of a company. One of the biggest advantages in
buying business assets is that they may be able to avoid some of the trouble
associated with the liabilities currently owed by John Pty Ltd.
There are several things that must be considered when purchasing business
assets as opposed to shares in a company. Firstly, it must be determined
whether there is any third party consent required in transferring the contracts
that make up the business. For example property leases may require
landlord consent in order to be assigned.
Employment contracts are also complicated in a business asset sale as they
cannot be assigned and therefore the seller of the business would need to
terminate the contracts of its employees and Julia and Kevins company
would have to enter into new contracts with the employees, should they wish
to retain them.
There is also a significant degree of flexibility with a business asset purchase
as Julia and Kevin will have the ability to choose which assets they wish to
purchase and which they wish to leave with the seller. However, if they fail to
purchase certain assets the business may not be considered a going
concern for the purposes of GST.
Stamp duty will be one of the bigger concerns for Julia and Kevin.
C. As well as general issues please address the issues discovered in their
investigations. 500
D. What protections could you draft in to the sale agreement if Kevin and
Julia wish to proceed to buy the shares in John Pty Ltd? 500
You could draft a precondition to the contract that would specify that the
proceedings against John Pty Ltd must be completed prior to the execution of
the contract. However, given that the proceedings are still in their early
stages, this may not necessarily be wise.
Part III
E. Your supervising partner has asked you to draft a memo with your
thoughts on that proposition and also what issues are likely to arise in
this transaction. 500
Part IV Tax 1000
Joint Venture
Trust
b) Income tax for Kevin & Julia (if they arent the owner)
c) Capital gains tax for the owner (of either the business assets or the
shares in the owning company) upon subsequent sale.