Incorporation Of A Private Company


James and Lulu, two young businessmen, plan to form a proprietary limited company to operate a restaurant. The company is to be called ‘Wonder Taste Pty Ltd’ (‘Wonder Taste’).

Question 1: Explain to James and Lulu the procedure by which Wonder Taste Pty Ltd can be ‘formed’ or set up and why it will be a ‘proprietary’ and ‘limited’ company? On 22 February 2013, James entered into a contract with Good Beans Pty Ltd to purchase 10 kilos of coffee beans. He executed the contract in the name of ‘Wonder Taste Pty Ltd’. On 24 February, the proposed company was registered. The company did not adopt a constitution and had a common seal. James and Lulu each took 50% of the issued capital, and both were appointed as directors. Because of a dispute between James and Lulu regarding the contract with Good Beans Pty Ltd, this contract was not ratified by Wonder Taste until 30 March.

Question 2: By 30 April, the coffee beans supplied by Good Beans Pty Ltd had been delivered to Wonder Taste but not paid for. Explain who may be liable to pay for them and why.

On 2 May, James ordered a coffee machine from Power Pty Ltd (‘Power’). James affixed the company seal and signed the contract twice in his own name as a director.

Question 3: Explain what assumptions Power are entitled to make and why?

Question 4: Explain whether (and if so, how) the assumptions Power are entitled to make in the scenario in Question 3 would be different if Wonder Taste did not have  a  company  seal  and James had  signed  the  contract twice, once in his own name and once in Lulu’s name?

Question 5: Explain whether (and if so, how) your advice would have been different if Power had suspected something was wrong regarding James’s signatures in the scenario in Question 4.

Following the Power matter, Lulu asks you about the replaceable rules in the Corporations Act 2001 (Cth).

Question 6: Explain to Lulu what the replaceable rules are, why they are written in the Corporations Act and what statutory effect they have?


The question belongs to Law and it discusses about a scenario where two businessmen form a private company to run a restaurant. Various questions about forming the company, the liability of a creditor, etc have been answered in the solution in detail.

Total Word Count 2976

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