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Memorandum of Advice

You are a junior solicitor working for “Plums and Pomegranate” law firm. Your supervising partner has asked you to prepare a Memorandum of Advice for the below client.
You must answer ALL of your client’s questions outlined in all parts of the assignment. Your client is a group of entrepreneurs; Jodie Healthy, George Zucchini, Johnny Appleson, Mary Wellness and Fiona Coconut.
Your workshops and prescribed readings in weeks 3 to 7 will provide the learning opportunities needed to advise your client. We will discuss your client’s questions generally in the workshops. You are then expected to draft your answers and compile them into a memorandum of advice for submission.

Problem Solving Assignment – Part 1 (week 3)
Jodie Healthy runs a thriving fruit and vegetable cart outside of QUT’s Gardens Point campus. She sources fresh produce directly from farmers and then sells it to QUT students and staff. Jodie’s philosophy is that healthy food fuels a healthy mind. She has established a loyal customer base since she began her venture 6 months ago. Jodie trades under her own name and has an ABN (Australian Business Number). She has not registered a business name. Jodie’s closest friends are George Zucchini, Johnny Appleson, Mary Wellness and Fiona Coconut. Ever since meeting at a wholefoods cooking course five years ago they have been inseparable.
George has been working in a large accounting firm in town, and after being retrenched recently decides to suggest that they launch an online business together. Over a smoothie at the West End markets the five friends agree to join forces to expand Jodie’s business. They devise a plan to use their joint knowledge of healthy food and cooking to sell a variety of organic fruit and vegetable hampers online. Each hamper will contain delicious recipes that can be made from the produce in the hamper. The hampers will be delivered direct to customers’ homes.
Your client seeks your advice on the following:
1. What type of business structure has Jodie Healthy been operating under? What are the advantages and disadvantages of this structure? Should this structure be retained for the business’s expansion, or is there another structure that is more suitable? Explain the reasons for your answer with reference to legislation and case law.

Problem Solving Assignment – Part 2 (week 4)
Jodie Healthy, George Zucchini, Johnny Appleson, Mary Wellness and Fiona Coconut have decided that they would like to adopt a company structure to accommodate the expansion of the business online. After much thought Mary and Fiona decide that they would like to be employed by the company. They will be responsible for managing the logistical side of the business’s online activities. Mary will oversee the processing of orders, whilst Fiona will manage the delivery of the hampers to customers. They are each offered, and accept to take up, a 5% shareholding when the company is registered.
Jodie, George, and Johnny agree to be directors of the company. Jodie will be the Managing Director and own 40% of the company’s shares. George has agreed to occupy the position of Company Secretary and will have a shareholding of 25%. Johnny will hold the remaining 25% shareholding.
The five friends agree that they cannot envisage selling their shares to anyone else, at least in the foreseeable future. They all feel so passionate about the venture, and they would like to maintain ownership of the business and control over decision-making about how it is run.
Your client seeks your advice on the following:
1. What type of company is most appropriate given your client’s objectives?
2. What will be the effects and implications of incorporation? Explain your answer with reference to legislation and case law.
Your client now instructs you to register the company. They would like the name of the company to be “Wholefoods”.
1. Fully explain the steps that you completed to register the company with ASIC?
2. What company name was registered for your client?

Problem Solving Assignment – Part 3 (week 5)
The company is registered as a private company limited by shares on the 14th of August 2015.
Jodie Healthy, George Zucchini and Johnny Appleson convene a board meeting on the 18th of August 2015 and decide that they would like to draft a company constitution. They also identify the need to raise capital to fund the expansion of the business online. They agree that it is necessary to include an internal management rule within the constitution which specifies who has authority to raise capital, and how this authority must to be exercised. After some discussion they decide that the board of directors must reach a unanimous agreement to commit the company to raising capital by way of loan or the issuing of shares. They also resolve that every director’s signature is required to execute a loan document.
During the board meeting George raises the option of floating on the ASX. Jodie and Johnny both express doubts about this being suitable given the company’s circumstances and their objectives. Johnny reports that the contract that they were negotiating with Dazzling Pty Ltd to design their website was executed on the 17th of August 2015.
Your client seeks your advice on the following:
1. Draft one internal management rule for the company’s constitution that reflects the client’s requirements in relation to raising capital. (note that you are only required to draft one rule rather than an entire company constitution)
2. What are the advantages and disadvantages of floating the company on the ASX? Provide advice about whether or not you consider it an appropriate course of action, explaining the reasons for your recommendation.
3. Did the company enter into the contract with Dazzling Pty Ltd in its own name? Explain the reasons for your answer with reference to legislation.

Your client has provided you with a copy of the signature section of the contract with Dazzling Pty Ltd (see below).

All 5 shareholders are present at a meeting of members held on the 20th of August 2015. During this meeting Jodie, George and Johnny propose a special resolution to adopt the newly drafted company constitution. Mary Wellness and Fiona Coconut are surprised. However, after careful explanation of each rule contained within it Mary and Fiona are impressed, and all 5 shareholders vote unanimously to pass the resolution.
Your client seeks your advice on the following:
1. Has the company’s constitution been validly adopted? Explain the reasons for your answer with reference to legislation.

Problem Solving Assignment – Part 4 (week 6)
Jodie Healthy’s aunty Betty Bikram is a yoga teacher who runs several very successful yoga studios in Brisbane. Over brunch at a café on the 29th of August 2015 Jodie explains to Betty that Wholefoods Pty Ltd needs an injection of capital to expand online. Betty who has always been suspicious of banks tells Jodie that she would be happy to loan money to the company for a period of 5 years, with an interest rate of only 1%. Jodie is excited and immediately calls George Zucchini and Johnny Appleson. Johnny explains that he is at a craft class with his kids, but says “sign a loan document as soon as you possibly can, this is an amazing offer”. George comes straight to the café and brings along his cousin Duncan Donut who works as a paralegal. They draw up a loan contract on the spot, and both Jodie and George sign the document on behalf of the company.
Your client seeks your advice on the following:
You are to assume that the company’s constitution was validly passed by way of special resolution on the 20th of August 2015.
1. Has the internal management rule regarding the raising of capital through loan been complied with? Explain your answer.
Betty is impressed with Jodie’s business acumen, and wants to help her niece realise her dream of transforming people’s lives with her healthy living philosophy. For some time Betty has been thinking about turning an estate she owns in the Sunshine Coast hinterland called “Namaste” into a yoga retreat. She has a brilliant idea and decides to invite Jodie, George, Johnny, Mary and Fiona up to her estate for the weekend to share it with them.
That weekend Betty proposes that Wholefoods Pty Ltd join forces with her own company Inner Bliss Yoga Pty Ltd. Together they could turn “Namaste” into a truly spiritual experience for people looking for an all-inclusive retreat holiday. Betty explains that she could provide the estate which already has accommodation facilities and intensive yoga courses for guests. Wholefoods Pty Ltd could offer healthy dining options for guests and organic produce cooking classes. They all agree that this is fabulous idea. Jodie tells Aunty Betty that they will get back to her within the next two weeks with a firm answer, after mediating on the idea and seeking legal advice.
Your client seeks your advice on the following:
1. Would a partnership or a joint venture be the most appropriate business structure for this new venture? Specifically you have been asked to outline the advantages and disadvantages of adopting each of these business structures in the circumstances. Explain the reasons for your answer with reference to case law and legislation.

Problem Solving Assignment – Part 5 (week 7)
Jodie Healthy, George Zucchini, and Johnny Appleson hold a board meeting of Wholefoods Pty Ltd. They are concerned about the company’s cash flow, and whether or not they can pay their debts as they full due in the next quarter. Over the last two weeks the company’s server has crashed several times, and as a result they have received almost no online orders for fresh fruit and vegetables. Johnny suggests that they simply continue as per normal, and place more orders for produce from suppliers for the next month. Johnny says “things are bound to pick up so let’s just place orders for next month, and if we can’t pay those invoices we can stall paying the suppliers for a few months”. Jodie and George express concern about doing this as placing additional orders now will in all likelihood mean that they cannot pay the suppliers when the invoices are due. They call you and leave a message asking what they should do, and then go to one of Betty’s yoga classes to de-stress.

Your client seeks your advice on the following:
1. Are there any legal implications if they place more orders with their suppliers for the next month? If so, what are they? Explain your advice with reference to legislation and case law.

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