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City University of Hong Kong School of Law LW3902 The Law Relating to Companies

Mid-Semester Coursework Assignment Semester B, 2011/2012

Instructions to Students:

1. The assignment is worth 50% of the overall mark for this course.

The total word

You must do a word

count and indicate the number of words on the cover page. If a paper exceeds the allowable word limit, only the first 2,500 words will be read and marked.

limit is 2,500 words, excluding footnotes and bibliography.

2. You must type the answers in a 1.5 lines spacing format printed on just one side of a standard A4-size white paper. The font size of the characters should be Times New Roman” and “12 point.

3. You must write down the course code and title, your name, student number, seminar section, cohort and lecturer’s name on the cover page of your assignment.

4. You must upload a soft copy of your individual assignment onto the Blackboard and drop a hard copy of it into a designated collection box in front of the General Office of the School of Law located on 5/F Purple Zone of Academic Building 1, from 12 th March 2011 (Mon) to 14 th March 2011 (Wed).

5. You must strictly adhere to the policy of City University of Hong Kong on plagiarism, which is a serious academic offence. Suspected plagiarism may be subject to disciplinary action. You may discuss your work with others, but you must provide your own answers. In case of doubt as to what amounts to plagiarism, please consult your lecturer.

6. Any sources for your answers should be footnoted in the paper. You should cite authority (i.e. cases and/or statutes) to support your legal arguments, but again these sources should be noted.

7. Example of proper format of citation:


Liu Hon Ying v Hua Xin State Enterprise (HK) Ltd [2003] 3 HKLRD 347


Srivastava, D.K. (2007), Business Law in Hong Kong (2 nd ed.), Sweet & Maxwell, Hong Kong, pp.478-479

Statute: s.275(1) of the Companies Ordinance (Cap. 32)

8. Extension to the deadline for submitting the assignment may be granted only in exceptional circumstances. Prior to obtaining any extension to the deadline, you must first approach the course leader well in advance with a reason for the request.

9. Any late submissions without permission will incur a penalty of 2% per day. For example, for 2-day delay, the full mark will be reduced from 50% to 46%. No assignment will be accepted after 21 st March 2011.

LW3902 The Law Relating to Companies Mid-Semester Coursework Assignment Semester B, 2011/2012

Answer ALL the following three (3) questions.

Question 1 (20%)

Lau and Kwan formed a partnership firm called Lau & Kwan Co. in Hong Kong in 2006 for antique trading. In 2008, they moved to Beijing and incorporated a company called Lau & Kwan Ltd. as they expected that the Beijing 2008 Olympic Games could bring a lot of business to them. Their business declined significantly after the completion of the Olympic Games. In 2011, Lau and Kwan decided to set up a sale office in Hong Kong to promote their business in Beijing.

After Lau and Kwan return back to Hong Kong, a creditor Cheung & Co., claims that the outstanding debts still remain from Lau & Kwan Co. and demands for immediate settlement. The debts in the amount of HK$1,200,000 mainly include a huge quantity of silk purchased by Lau as the partner of the firm. Unknown to Cheung & Co, Lau was in breach of the partnership agreement made between Lau and Kwan. The agreement clearly states that: “no partner is allowed to enter into any purchases exceeding HK$1,000,000 without both partnersconsent”. As a result, Kwan is now claiming that he should not be liable for the debts arisen from the purchase of the silk.

In order to attract the potential buyers of antique, Lau & Kwan Ltd. rent a shop in a high end shopping mall in Central and place some samples of antique there. They also give free professional advice on interior design depicted by some drawings and catalogues to the potential buyers, who wish to order antique from them.

After six months, Lau & Kwan Ltd. have given out many free drawings, catalogues and professional advices on interior design, but they have received no order through the sale office in Hong Kong and soon the company has been sustaining heavy losses. To make matters worse, the Registrar of Companies has declared Lau & Kwan Ltd. a “non-Hong Kong company” as per the requirements in the Companies Ordinance (Cap. 32). As a result, they are required to submit numerous costly and timely documents to the Registrar including company accounts. In conjunction with their obligations in Beijing, these subsequent requirements threaten their financial safety further. Lau & Kwan Ltd. deny that they are carrying on business in Hong Kong.

Advise all the parties with reference to both case law and legislation.

Question 2 (20%)

Upon incorporation under the Companies Ordinance (Cap 32), a company is a separate legal entity from its members or shareholders. This means that the law treats the company as a separate person distinct from its members or shareholders. This legal concept allows these members to use a corporate “veil” to prevent outsiders from taking action against them. Hence, these members will never be liable for what the company does.

Discuss the above statements with reference to decided cases and statutes if necessary.

Question 3 (10%)

Amy and Bobby plan to carry on trading business. They understand that they can form either a partnership firm or a limited liability company for carrying on their business, but they do not know exactly the differences between them.

Advise Amy and Bobby the essential differences between a partnership and a limited liability company.

After realizing the disadvantages of partnership and limited liability company, Amy and Bobby change their mind and decide not to form any firm or company. They then enter into a contract, under which Amy advances $800,000 to Bobby for funding Bobbys personal trading business. The contract states: “the parties in this contract shall have joint control of the bank account moneys and equal sharing of profits from the business. Nonetheless, this contract shall not constitute a partnership agreement between the parties hereto.

Now that Bobby suffers heavy loss from the business, and Amy wishes to recover $800,000 from Bobby. Advise Bobby.

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