HI5027CORPORATIONS LAW TRIMESTER 2, 2013 Assignment 1 – CaseStudies Assessment Value: 20% Word Length XXXXXXXXXXwords Date Due: Week 5 Question 1. (10marks) Andyhas run a small corner store as a...

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Assignment 1 – Case Studies
TRIMESTER 2, 2013
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Answer 1
Introduction

According to the given scenario a sole trader (Andy) transfer its sole proprietorship business into
company with the objective of include its children in the business; with the formation of the
company there were two classes of share launched; A with voting rights and B with non voting
rights. All the shares are being hold and shared among the family members of the Andy.
However company failed and Andy takes possession of all the assets within company being a
secured creditor; as he provided loan to the company; now nothing is left for other creditors of
the company.
Issues in the case

The incorporation doctrine of the company is related with the formation of the company; it helps
in providing a legal position to the company and facilitate in resolving any dispute a raised.
Further, in the given case the form of company also plays crucial role; assuming that Andy
formed a limited liability company, which means that liability of the shareholder is fixed during
dissolution of the firm (Beatty & Samuelson, 2009).
Major issue addressed in this case is the lifting of corporate veil; is Andy has tried to conduct a
fraud by keeping himself as secured creditor and all other shareholders were also dependent on
his wish and actions. Is the formation of the company was a myth or not? Is corporate veil can be
raised in this case or not? Here is will be evaluated whether action taken by Andy was wrong or
not under statutory requirement or legal jurisdiction.
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Rules apply

In limited liability firms the amount of liability which a shareholder will possess during
dissolution is fixed; this facilitate in ensuring finite and restricted amount of liability which has
to bear by shareholders (Halpin, 1996).
According to the law of business incorporation and limited liability Company, shareholders and
business are treated as two separate entities for protecting all stakeholders and ensuring fair
dealings within business (Rush & Ottley, 2006). However, this law has been misused in several
instances by different shareholders with the aim of committing fraud with the company. In such
scenarios, the lifting of corporate veil is conducted to analyze whether in which shareholder and
business are treated as same entity and actions are taken.
There are two major scenarios under which this can take place that are statutory requirement or
legal jurisdiction. Failure of meeting statutory requirement includes scenarios such as fraudulent
trading within organization; legal jurisdiction includes fraud within company or protecting the
revenue of the company.
Another rule that is crucial to evaluate in the given case is the position of secured creditor in the
company. A secured creditor is the one has taken a security for the credit or loan made; there is
asset which collateralized the position of the creditor. In the given case also, Andy provided a
loan to the company for the...