Eastfield (UK) Ltd is a small privately owned company based in Essex. They design and manufacture a comprehensive range of architectural and drainage products,
Background key information:
Eastfield Ltd (Eastfield) requires debt financing and thus a new company validly incorporated called Capital Pty Ltd (Capital) provides finance to Eastfield. After Eastfield encounters an area of business where it is financially unviable for the continuation of the project, the directors decided to close down that business. Capital therefore wrote off the bad debts and claimed a tax deduction on the bad debts but was issued a notice from the Commissioner of Tax that claimed Capital is just an extension of Eastfield and thus is exclude for the allowance to claim a tax deduction. The underlying issues of this case are the separate legal entity of Capital, individual to its parent company Eastfield. If it was a separate legal entity, the commissioner of tax need to consider whether if it is possible to pierce the corporate veil through agent relationship or by labelling Capital as a sham. In consideration to these issues, some other key facts to consider are the relationships between the parent company, Eastfield and Capital. The employees of Capital are supplied and funded by Eastfield, Capital distributes all of its earning to Eastfield as dividends, Eastfield determines the capital structure which Capital then implements to meet the demands if its parent company
Separate Legal Entity:
Capital is established by Eastfield as a subsidiary company and was validly incorporated on March 2010. The Commissioner of Tax holds to disallow the claim on tax for a bad debt write off between the parent and subsidiary companies as it suggests that there i...
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11. Walker V Wimborne [1976] 137 CLR 1
Academic Journals:
1. Bainbridge S, ‘Abolishing Veil Piercing’ (2001) 26 Journal of Corporation Law 479 at 506-514
2. Harris J, ‘Lifting the Corporate Veil in Industrial Disputes’ (2004) 22 Company and Securities Law Journal 69
3. Harris J, ‘Lifting the Corporate Veil on the Basis of an Implied Agency: A Re-evaluation of Smith, Stone and Knight’ (2005) 23 Company and Securities Law Journal 7
4. Hargovan, A. (2006). Company law and securities: Breah of Directors’ Duties and the Piercing of the Corporate Veil’. Australian Business Law Review, 34(4), 304-308
5. Hargovan A and Harris J, ‘Together Alone: Corporate Group Structures and Their Legal Status Revisited’ (2011) 39 Australian Business Law Review 85.
Book:
1. Harris, Hargovan and Adams, Australian Corporate Law, 4th edition, 2013, LexisNexis/Butterworths
Twomey, D. (2013). Anderson's Business Law and the Legal Environment, Comprehensive Volume [VitalSouce bookshelf version]. Retrieved from http://digitalbookshelf.southuniversity.edu/books/9781285696683/id/L35-1-7
Tighe, Carla and Ron Michener. "The Political Economy of Insider-Trading Laws." The American Economic Review May 1994: 164-168.
Assessing the capital structure of any firm is important for investors attempting to determine if...
Business is a game of gambling. In poker, a person can be honest and keep his or her hands above the table, but there is always a person that has hands under the table. Businesses find many people with hands under the table when the issue of corporate self- dealing appears. Corporate self-dealing is when a trustee or other fiduciary of a business takes advantage of his or her position in a transaction for self-benefit instead of the company’s overall benefit. Self-dealing can include corporate assets or opportunities. John H. Farrar and Susan Watson notes, “If a director deals with a company that he or she is a director, there is a risk of conflict of interest as well as a breach of the duty to act bona fid for the good of the company or promote success” (495). Without some form of limitations businesses have no way to control the act of self-dealing within the company. Although numerous solutions have been suggested, the solution implemented needs to be able to form to each individual business without limiting the transactions of the business. Nonintervention, Prohibition, and Majority of the Minority Vote have all been considered, however, these solutions are not efficient enough for the business world or able to best limit the role of self-dealing. Nonintervention only ignores the problem in hopes it can resolve itself, while Prohibition provides only a strict method that does not ensure that people will not perform the actions. The Majority of the Minority vote resembles a voting system, but is not time efficient. While it only guarantees that the transaction is fair, the best solution to limit corporate self-dealing is to incorporate the Fairness test into business transactions.
The value of Poor Son declined significantly since external economic conditions. It shows that the fair value of Poor Son, the emerging entity, should be way less than its book value, and the value of assets is less than the total of liabilities and claims. Additionally, Parent will receive 100% voting shares of Poor Son and have the ability to name all members of Poor Son’s board of directors. This means that existing voting shares receive less than 50% of the voting shares of the emerging entity. For that reasons, Poor Son should apply “Fresh-Start” under ASC 852-10-45-19.
Furthermore, the new entity had a solid capital structure with 40% equity and also 43.3% subordinated debt
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
In our business world, ‘Capital is the lifeblood of every business venture’ (Smith, 2012). Capital can build up company, purchases non – current assets for instance machinery or plant and paid off daily expenses for examples wages, lighting, power etc. Every company needs to have someone to manage the finance by thinking different types finance which are internal short term, internal long term, external short term and external long term financial resources. These are the main four ways which can raise the capital but those sources may relate to different repayment rate and length and the amount will be received. When the owner and manager thinking to apply internal or external financial resources they need to consider Purpose, Amount, Repayment, Interest and Security which is name as PARIS. Purpose is identifying what type of finance are suitable to required, amount is how much should be borrow, repayment is how much and when should the business pay the finance back. Interest is how much is the finance cost and security is the business need put down the business assets or personal household as a deposit before receive any finance. These are the main concepts owner and manager need to remember before apply any type of finance. (Cox and Fardon, 2009) Director and manager need to think effectively for rising capital in an effective way which includes lower repayment and the control of the company. (Gillespie, 2001)
James G. Skakoon, W. J. King and Alan Sklar (2007). The Unwritten Laws of Business. /: Tantor Media.
[7] Cavendish Lawcards Series (2002) Company Law (3rd edn), p.15 [8] [1976] 3 All ER 462, CA. [9] Griffin, S. (1996) Company Law Fundamental Principles (2nd edn), p.19 [10] [1990] Ch 433. [11] Lecture notes [12] Lecture notes [13] [1939] 4 All ER 116.
Solomon, J (2013). Corporate Governance and Accountability. 4th ed. Sussex: John Wiley & Sons Ltd. p.7, p9, p10, p15, p58, p60, p253.
Colvin, A. S. (2013). Participation versus procedures in non-union dispute resolution. Industrial Relations, 52(S1), 259-283.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
In order to maximise firm value under this model, the firm should seek to borrow until that tax benefit from an extra £1 of borrowing equals the cost arising from increased likelihood of financial distress. It is clear that this theory regards the capital structure as highly relevent to firm value, and supports a real world scenario more strongly than M&M as it allows for bankruptcy costs. On an empirical level this perhaps explains why there are differences in capital structures between different
The Role of the Directors in a Company is of a paramount importance in the discourse of the proper running of the company. Directors are the spirit of the company .The company is merely a legal entity, governed by its directors. These directors have certain duties and responsibilities. These are mainly governed by the Corporation Act, 2001. Section 198A (1) of The Corporations Act, 2001(The Corporations Act 2001 s 198A (1)), clearly states that, ‘The business of a company is to be managed by or under the direction of the directors’.