Essay about Capstone

1855 Words Aug 9th, 2013 8 Pages
Question 1
The first step:Legal Issue
The legal issue is the establishment of a company and its corporate liability in terms of debts. The legal issue seeks to determine if Samantha is entitled to collect the payment of $50,000, which she has loaned to the company.

The second step:Principle of Law
According to the resource a company is considered as “a separate legal entity,” (Hicks and Goo 2008, 95) and under its own name, the company has the power to own properties and to sue or be sued (Hicks and Goo 2008, 95). Based on s 114 of Corporations Act 2001 (Cth), the company needs a minimum of one director and member in order for it to be constituted; a proprietary company can have the same person as a director and as a shareholder. The
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The loan, which was incurred during the term of the director, must be paid within the term of the director (s 443A, Corporations Act 2001 (Cth)).
From the case that Salomon v Salomon & Co Ltd [1987] AC 22. Salomon established a limited company where he was the managing director. He sold his business to the company, but the latter was dissolved, and Salomon paid the secured creditors while the unsecured were not paid. The unsecured debtors seek repayment to Salomon for him to be personally liable of the debts. The court ruled that Salomon and the company are separate legal entities with their own separate assets, liabilities, and contracts.
What’s more, there are instances that the corporate veil is ignored under common law and statute. Lifting of veil at common law happens when officer’s actions are fraudulent like evading permissible duty; this circumstance would allow the creditors to run after the members and directors for them to be personally liable of debt repayment. Such as in the case of Gilford Motor Co v Horne [1933] CH 935, where Horne was proven to have breached in his contract with the company that he will not be soliciting the customers of Gilford even in the event that he resigns.

The third step: Law as Applied to the Issues
Samantha established a company with her as the only member is reference to s 114 of Corporations Act

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