QUESTION 2

Paul and his sister Polly incorporated a company, Doggy Smiles & More Limited, which specializes in the grooming of dogs. Two weeks before the incorporation of the company, Polly purchased a commercial grooming machine for $150,000 which she sold to the company immediately after it was incorporated for $250,000, without disclosing any of this information to Paul. While reviewing the company records Paul discovered the price Polly paid for the grooming machine and is furious that she sold the machine to the company at that price. He approached Polly threatening to take legal action against her. Polly is upset that Paul is contemplating legal action and no longer wants to be a part of the company. In view of this, she is thinking of registering her own company using the name Doggie Smilzs & More Limited, since she intends to offer the same grooming service. In order to raise the money to incorporate the company, she plans to sell shares to her friend Sally. However, Sally has made it clear that as a shareholder she wants to take an active part in the management of the company. Advise:

a) Doggy Smiles & More Limited as to what possible action, if any, the company can take against Polly in relation to the sale of the grooming machine

b) Polly as to whether she can register her company with the name Doggie Smilzs & More Limited

c) Sally as to the most appropriate type of share to purchase (Total 15 marks)