Company law for business:
Business Education Ltd is a Perth based company that retails textbooks worldwide. Maria is their Purchasing Manager and Charles is their Chief Accountant.
Business Education Ltd has a constitution which is a combination of all of the replaceable rules and the following clauses:
(i) the activities of the company are restricted to sales and distribution of written textbooks used for educational purposes; and
(ii) Charles shall be employed as the company’s chief accountant until he decides to resign.
Maria visits publishers in Sydney. She enters into discussions with Asia Books Pty Ltd, a company based in Sydney that has exclusive distribution rights in the Asia and Pacific region for a very popular series of fiction books. Maria signs an agreement for Business Education Ltd to be the Australian distributor of fiction books for the next 5 years.
When the Managing Director of Business Education Ltd learns of this transaction, he corresponds with Asia Books Pty Ltd rejecting the agreement on the grounds that Business Education Ltd has no legal capacity to enter into such a contract and the company is bound to follow its constitution.
Charles attends an accountants conference in Tasmania where he becomes aware of a warehouse, suitable for storing the company’s educational textbooks. He visits the warehouse owner, introduces himself as Chief Accountant and signs a contract on behalf of Business Education Ltd to lease the warehouse.
Upon learning of Charles’s actions, the Managing Director of Business Education Ltd refuses to accept the lease. He corresponds with the warehouse owner denying any liability under the lease on behalf of Business Education Ltd, pointing out that Charles did not have the authority to sign an agreement of that type.
REQUIRED:
With reference to the Corporations Act 2001 (Cth) and case law, you are required to answer the following questions:
a) Discuss three legal differences between Business Education Ltd and Asia Books Pty Ltd and explain the meaning of ‘Ltd’ at the end of each company’s name.
b) Taking into consideration the correspondence of the Managing Director of Business Education Ltd with Asia Books Pty Ltd, advise Asia Books Pty Ltd of its rights.
c) Advise the Tasmanian warehouse owner of his rights.
d) The Board of directors decides to dismiss Charles from his position as Chief Accountant. Advise Charles on the validity of his dismissal as Chief Accountant.
e) Charles has a clause in his employment contract with Business Education Ltd that he must not compete with the company’s business during his appointment or after termination of his appointment. After leaving Business Education Ltd, Charles sets up a company called ‘Unitexts Pty Ltd’ to distribute textbooks to university book shops. Business Education Ltd brings an action seeking to restrain Charles and Unitexts Pty Ltd from engaging in a competing business. Charles argues that Unitexts Pty Ltd is a separate legal entity and it can do what it likes. Discuss whether Business Education Ltd is likely to be successful in its action.
f) The members of Business Education Ltd have passed a resolution to make primary school text books the focus of the company’s business. Discuss whether the Board of Directors are required to follow this decision and what options, if any, are available to the members if the Board does not follow their decision.