QUESTION ONE

For many years Ali has been the chief chemist with the Pop-a-Pill Drug Company Ltd. His employment contract in clause 33 requires that in the event of Ali leaving his employment, he will not work "in competition with the Pop-a-Pill Drug Company Ltd for 1 year". Ali registered an Australian company [Gee Chemicals Pty Ltd] and when he resigned from Pop-a-Pill he immediately became the managing director of Gee Chemicals.

Pop-a-Pill claims Ali is in breach of contract. Ali says that Gee Chemicals is in competition with Pop-a-Pill Drug, but he personally is not. Later, Gee Chemicals Pty Ltd is found to be selling drugs in breach of the law. Ali claims that he is only an employee and that it is the company that has broken the law, not he.

Discuss

[A detailed discussion of contract law or criminal law is not required here]

QUESTION TWO

Faith and Hope want to start a business selling company law textbooks. Their business plan shows they will require $150,000 to buy stock and set up a shop but they can only personally put up $100,000. They are thinking of borrowing the additional $50,000 from the bank to start the business. Faith had previously been held responsible for costs incurred by her when acting as a trustee for her family trust when the trust became unable to meet expenses.She is thus wary of using a trust arrangement and convinces Hope that they should consider the possibilities of conducting their business using either a partnership or a company.

Required:

(i)Advise Faith and Hope about the attributes of the two alternatives, in particular consider that as a start-up business there is a real possibility that their venture may fail, leaving unsatisfied debts.

(ii)Discuss the difference between the liability of a trustee for the costs incurred on behalf of a trust, by a partner for costs incurred by the partnership or by a director for costs incurred on behalf of the company?

QUESTION THREE

Julie has a new mining venture that requires $1m and she already has 80 investors interested in backing her. To start with she will only need $600,000 to commence exploration and the remainder will be needed in a year. She plans to allow investors to have 75% of the business and she will hold 25%.However, when the business is more successful and valuable, she anticipates that she will wish to sell some of her interest and enjoy some of the benefits.

Julie's accountant has advised her to register a proprietary company. Do you agree with this advice? What else might you advise her to assist in achieving her objectives?

QUESTION FOUR

Snoop wants to start a beauty salon for the dogs of a select private clientele. Snoop believes that if he registers a company, this will give both him and the company, the protection of limited liability. He also does not want to share the management with others and would like to keep the affairs of the company as confidential as possible.

Is Snoop correct in his understanding of limited liability? What sort of company would allow him to operate as he wishes?