HI6027 | Business and Corporate Law | Case Studies of Business Law and Business Structures
Introduction And The Basis Of Contract
As the name suggests, a contract is a legal agreement between two parties to do or refrain from doing something, made on mutual consent in written or oral terms. The agreement is binding on both the parties in the picture along with the content of the agreement and any deviation from the terms of the agreement results in damage and compensation by the accused party to the opposite (australiancontractlaw.com, 2020). In this scenario, the basis of the contract itself can prevent Joey from joining CAN, and Advise Great Games can file for a case of breach of contract.
Principles Of Australian Contract Law
Australian contract law states that there exist two major elements in a valid contract, offer, and acceptance. Along with the terms and conditions for a valid contract, the law also states the legal rules that should be present for a contract or a legal agreement to be binding.
There should be two or more parties along with an opposite party: For a contract to be legally binding there should exist an offering part and the opposite part which chooses to accept the offer or decline.
There should be an offer presented by either party: The offer should clearly mention the particular item or items and any related information to it. The offer can be either made verbally or in written communication but should amount to exchange.
Acceptance of the offer made, by the other party: When accepting an offer, it is considered as a statement made either accepting or declining the offer. When accepting it means the accepting party is promising to do something laid down in the contract.
Agreement made with an intention to develop a legal relationship between both parties: Informal contacts can also be made between families and social boundaries which do not require formal agreements but there has to be an intention of a valid agreement.
Mutual consideration of the contents in the offer is made: The common law requires that there should be a mutual exchange of benefits made from the offer. Both the parties should receive some kind of payment in exchange for a promise made (australiancontractlaw.com, 2020).
Terms implied by a statute: A contract has its own terms and conditions which are implied immediately an offer is made. These terms and conditions have to be followed in order to claim the contract valid under the law. The basis of implying statutes is to maintain the privacy of contract between both the parties.
Legal Rules Relating To Contract Law In Australia
The basic rule of contract law is the matter of obligation that exists between the parties in an agreement. When either party fails to abide by the obligations made, the particular party has been said to commit a breach of contract.
Equality before the law is the foremost rule when seeking justice made against a breach of contract. Equality before the law is important since the ultimate purpose of a contract or agreement is to foster a trustworthy relationship among the parties (simpsons.com.au, 2020).
Vigilant balance over the use of power means not taking advantage of the allowances and power given to either of the parties. The terms and conditions enshrined under this law clearly state the powers that can be exercised within a limited capacity and abidance that has to be maintained.
The rights of the accused and victims are mentioned in the statute that helps both the parties respect the agreement and abide by its rules. The right of the accused involves consideration of unpleasant factors or ‘acts of god’ which might result in a breach of contract. The rights of the victim involve rightful demand for compensation and to refrain from delivering the promised payment.
Presumption of innocence is a considerable rule that this law demands. Contracts are termed void when it is made upon unsound mind or body or coercion or human error. When a person does not understand the implication of the contract be it under any circumstances given, the contract cannot be valid under the law.
Independent judgment of the judiciary, freedom of speech, and knowing the law, are the other legal rules that come along with the terms and conditions for a valid contract.
BREACH OF CONTRACT: A contract will say to have been breached if the promises or conditions laid down in the contract are not met upon by either of the parties.
Case Study 1
FITZGERALD V MASTERS  HCA 53;  95 CLR420 (11 September 1956)
Breach of contract in agreements relating to land: where the master has come into agreement with Fitzgerald, where the property would be acquired by the master once the full amount is paid (lawcasesummaries.com, 2020). After Fitzgerald’s demise, The Master wants his share. Equity is possible in this case since rights were not abandoned.
Case Study 2
CROWN MELBOURNE LTD. V COSMOPOLITAN HOTEL (VIC) Pty LTD (2016) 260 CLR
Breach of contract in terms of the lease: Crown Melbourne Ltd. leased two premises to Cosmopolitan Hotel for a term of 5 years, getting into the agreement of renovation in the span of 5 years. The contract was rejected by both the high court and the Supreme Court on the grounds of unclear promise and too vague to be enforceable (lawcasesummaries.com, 2020). The collateral contract was made void and the Crown made an appeal concerning promissory estoppel while Cosmopolitan cross-appealed seeking to establish a collateral contract.
From the contract law theory discussed above, it is clearly understood that Joey has performed a breach of contract as soon as he accepted the offer made by Computer Animated Films Inc. (CAN). By doing so, he has unlawfully declined the previous offer that he was bound into under independent decision and acceptance of the offer. Advice Great Games is perfectly in the position to claim equitable remedy and damages. The breach of contract had occurred between the parties and the non-breaching party is entitled to damages as a legal rule of right. The parties may also come up with a provision in the contract.
When aiming for a new start-up or business, it is advisable that the owner of the star-up or business has gained knowledge, from a professional financial advisor, about the various business structures and carefully chosen the one that fits, in accordance with the type of business one is establishing (entrepreneur.com, 2020). Irrespective of the type and extent of the business, it is mandatory to have it legally recognized under a particular jurisdiction within the demarcated market. The business structure for a bakery business that Harry has proposed, the simplest form will be that of a sole-proprietorship.
Sole-proprietorship is the simplest kind of business structure suitable for individual owners starting a small business irrespective of the type. In this entity, one person or the entrepreneur (in this case, Harry) is responsible for the overall establishment and working of the business. The basic popularity of this structure lies in its simplicity, ease in setting up and nominal cost efficiency. Since the structure is not entirely legal-based, the sole-proprietor or the owner of the business is the only recognizable entity responsible for the brand name. The requirement of following a business structure of this sort is that the name of the owner has to be registered and a secured local license has to be obtained for the same.
How Is sole-proprietorship Beneficial For New Small Business
As per the entrepreneurial aim in starting a bakery business, it has to be considered that his business strategy began for his qualification in the mentioned field and moreover the capital savings and resources he had put aside for the business. Every individual with one’s own ideas and strategies to put up a new business along with limited resources should foremost consider a sole-proprietorship business structure (entrepreneur.com, 2020). The simplicity of the structure does not need long paperwork filing and doing the tedious amount of documentation thus making the entire process more achievable and motivational for a beginner. By opting setup, the sole-proprietor has to simply come up with a company idea, promote it, carry out the business work and collect the money. As an individual setup, the division of work is not possible thus a collection of money, filing taxes, and distributing the earnings become easier. The greater benefit of establishing a business under a sole proprietorship is the control and credibility that one gains from being the sole owner of the business. Important decisions regarding the business can be taken alone and the products and services to be provided can also be chosen independently. As much as there is maximum control of the owner over the business, there also lays control over how one prefers to cease business operations and exit the market. With less or no employees working for the business, monetary payment shortens and the profits made can be utilized for advancing and improving the business over a larger horizon. The selling and transfer of ownership rights can be done at any point without having to go through lengthy legal procedures. Most of the other business structures require shared ownership and division of control and inputs from shareholders (upcounsel.com, 2020).
Advantages Of Sole-proprietorship
Sole-proprietorship status is an automatic requirement of an independent business structure that has its own advantages:
Attaining and keeping control over the business: in a sole-proprietorship, since the business owner is the head of all business-related transactions which include major decision making as well, it is the owner’s responsibility to take control over the entire business. Unlike a partnership, LCC or corporation, there exists no need to seek approval or consent from the partners or employees.
Simplified and cost-efficient business structure: to set up a business under sole-proprietorship is quite cost-efficient since all the profits made in business go directly to the owner. For the record, investment in employees is almost non-existent and the money can be utilized or reinvested in expanding the business.
Maximum privacy: sole-proprietorship has no legal identity of its own under the law. The owner of the sole-proprietorship signs a contract in one’s own name. This business structure does not need legal and formal agreements with the government thus the business is not subjected to public disclosure like that in LCC and partnership (upcounsel.com, 2020).
Minimal requirements for reporting: for the absence of separate legal identity, sole-proprietorship is generally free from submitting annual reports to the government or higher authorities.
Simplified filing of taxes: there is no distinguishable aspect between a sole-proprietor and the owner of a business, the overall income earned by the sole-proprietor is the income earned by the owner only. One does not need to file any special tax. The IRS both the owner and the sole-proprietor the same which reduces the constant burden of filing double taxation.
Disadvantages Of Sole-proprietorship
Besides the multiple advantages of this business structure, it has a few disadvantages as well.
Unlimited liability: in a sole-proprietorship, an individual is the owner of the business and liable for all the debts. Thus one has to pay debts by whichever means suitable showing the condition of unlimited liability alone.
Limited financial resources: limited financial resources due to lack of funds and independent experience is a major issue for sole-proprietors who have established small businesses.
Lack of continuity of transactions: due to limited deposit of resources it becomes difficult for sole-proprietors to be sure of the extent of the business and its continuity (upcounsel.com, 2020).
The limited capacity of the owner: an individual owner has a limited cognitive capacity, skills and knowledge thus limited mental capacity for the input of new ideas.
Increased level of competitors: in this technologically advanced world, most sole-proprietors are increasing in the count because it is the simplest way to start an independent business. Small businesses have to encounter competitive trouble as a result of this increase.
Weighing both the advantages and disadvantages of procuring a sole-proprietorship business structure, it can be well stated that particularly this structure is suitable for sole owners of a small business. The simplicity and cost efficiency along with its positive results on business goals have made it more advisable to sole business owners.
simpsons.com.au, (2020) SIMPSONS Available at https://www.simpsons.com.au/documents/visarts/visarts89/1Princip.pdf Accessed on 4th June 2020
australiancontractlaw.com, (2020) AUSTRALIAN CONTRACT Available at https://www.australiancontractlaw.com/law.html Accessed on 4th June 2020
entrepreneur.com, (2020) ENTREPRENEUR Available at https://www.entrepreneur.com/encyclopedia/sole-proprietorship Accessed on 5th June 2020
upcounsel.com, (2020) UPCOUNSEL Available at https://www.upcounsel.com/advantages-and-disadvantages-of-sole-proprietorship Accessed on 5th June 2020
lawcasesummaries.com, (2020) LAWCASESUMMARIES Available at https://lawcasesummaries.com/knowledge-base/crown-melbourne-ltd-v-cosmopolitan-hotel-vic-pty-ltd-2016-260-clr-1/ Accessed on 5th June 2020
lawcasesummaries.com, (2020) LAWCASESUMMARIES Available at https://lawcasesummaries.com/knowledge-base/fitzgerald-v-masters-1956-95-clr-420/ Accessed on 4th June 2020