Deck 1: Business Organisations, Companies and Incorporation

Question 1

The concept of limited liability means that a company's liability is limited to any amounts remaining unpaid on its shares.

Answer 1

False

Question 2

Polly Parrot registers a company called Lorikeet Pty Ltd. Polly is the sole shareholder and sole director of Lorikeet Pty Ltd. Lorikeet Pty Ltd does not have a secretary or any other officers or employees and has no assets other than $500 in a bank account. It has no business operations. Which of the following is correct?

A) Polly Parrot will be exposed to unlimited liability.
B) Lorikeet Pty Ltd has violated the Corporations Act (Cth) 2001 as all companies need at least two directors.
C) Lorikeet Pty Ltd is a "small proprietary company" under s 45A(2) of the Corporations Act (Cth) 2001.
D) Lorikeet Pty Ltd could raise capital by offering shares or debentures to a large number of people by complying with the fundraising provisions in Ch 6D of the Corporations Act (Cth) 2001.
E) Both A and C are correct.

Answer 2

Lorikeet Pty Ltd is a "small proprietary company" under s 45A(2) of the Corporations Act (Cth) 2001.

Question 3

The maximum number of shareholders a proprietary company can have is:

A) There is no maximum.
B) 50 non-employee shareholders.
C) 50 non-officer shareholders.
D) 50 with at least two who are Australian residents.
E) 40 with at least two who are also directors.

Answer 3

50 non-employee shareholders.

Question 4

Why does a company require people to act on its behalf?

A) The Corporations Act requires a company to have at least one member
B) While the company is a separate legal entity and members generally enjoy limited liability, it is possible in certain circumstances to lift the corporate veil.
C) An unlimited company is a company whose members have no limit placed on their liability to the company.
D) A company is an artificial legal construct and relies on persons to make decisions and take action on those decisions.

Question 5

Which of the following is NOT one of the tests contained in s 46 of the Corporations Act to determine whether a company is a subsidiary of another company?

A) The holding company controls more than 50 per cent of the votes of the subsidiary company.
B) The holding company holds more than 50 per cent of the issued shares of the subsidiary company.
C) The subsidiary company has shares in its holding company or gives assistance
D) The company is a subsidiary of a subsidiary of the holding company.

Question 6

The maximum number of partners in all types of partnerships is twenty (20).

Question 7

Hansel and Gretel form a partnership for their business making ginger bread houses. Before making any ginger bread houses, Hansel instructs Gretel to find a warehouse to store the ginger bread houses that the partnership will be making. Gretel finds a large warehouse in Burleigh Heads and enters into a lease with the landlord on behalf of the partnership. When Hansel inspects the warehouse he is disappointed as it is not what he expected. He informs Gretel that he no longer wishes to proceed with the partnership. Which of the following is the most correct answer:

A) It is likely that Hansel would incur no liability with respect to the warehouse lease as he did not sign the agreement.
B) The lease would most likely be binding on the partnership if the partners ratified it as it is a pre-registration contract.
C) Hansel and Gretel would be jointly and severely liable on the lease as they are partners.
D) The lease is not binding because at the time it was entered into no partnership existed and thereby it is not binding against anyone.
E) Hansel is not liable on the contract because Gretel signed it and he has validly terminated his interest in the partnership.

Question 8

Hoytie Pie Pty Ltd has 100 issued shares. 99 of those shares are owned by David. The remaining share is held by Paul in trust and David is the sole beneficiary of that trust. David is the only director of Hoytie Pie Pty Ltd. When Hoytie Pie Pty Ltd was registered, it adopted a comprehensive constitution which modified all the replaceable rules applicable to Hoytie Pie Pty Ltd.

A) David cannot be an employee of Hoytie Pie Pty Ltd because he is the sole director and has control of all the shares in the company.
B) David has a beneficial interest in the share held by Paul.
C) The constitution has the effect as contract between David in his capacity as director and Paul in his capacity as a member pursuant to section 140(1) of the Corporations Act (Cth) 2001.
D) Hoytie Pie Pty Ltd can only enter into a contract if the contract is signed by David as the sole director.
E) Both (c) and (d) are correct.

Question 9

Which of the following is most likely to be deemed a partnership?

A) John and David start a business selling ducks. David is an excellent duck farmer and John is a superb duck salesperson. They agree that they will share the gross proceeds from sales on a 50/50 basis. David will be responsible for his costs associated with breeding the ducks and John will be responsible for his costs associated with selling the ducks.
B) Paul is a plumber. He owns all his equipment in his own name and runs the business in his name. Paul employs Matt and pays him $500 per week plus a bonus of $150 per week if clients are billed in excess of $5000 for the week.
C) Tory and James agree to start a restaurant business called "Sweet Alex". They agree that Tory (who is a chef) will receive 60% of the net proceeds and James will receive 40%. While they have not yet opened the restaurant, they have located suitable premises and are in the process of remodelling it for the business.
D) Louie holds a business in trust for George and Peppa. Pursuant to the trust agreement, Louie is required to distribute the net profits of the business to George and Peppa in equal shares on the last day of each financial year.
E) Chris registers a company called Chris Pty Ltd to conduct a stockbroking business. Pursuant to the terms of the constitution, the company is required to pay a dividend every year to the shareholders in an amount equal to the net profits generated by the company that year.