Question

Question 13. Which of the following statements about debt capital is correct? (a) [1 mark] An unsecured creditor only has rights in contract, whereas a secured creditor has rights under the Corporations Act 2001 (Cth) An unsecured creditor only has rights under the Corporations Act, whereas a secured creditor has rights in contract A secured loan is one in respect of which the company has given special rights over its property to a creditor that can be used by a creditor to recover the amount owed. An unsecured loan does not have these special rights over the company's property. An unsecured loan is one in respect of which the company has given special rights over its property to a creditor that can be used by a creditor to recover the amount owed. A secured loan does not have these special rights over the company's property (b) (c) (d) Question 14 Which of the following is a proper purpose in relation to a decision to issue new shares in a company? (а) (b) (c) (d) mark] To dilute the shareholding of a member To entrench control of the company in certain shareholders To strengthen control of the company by the directors. To enter into a joint venture with another company Question 15 Section 181 of the Corporations Act 2001 (Cth) requires directors and officers: 1. To act in good faith. 2. To act diligently. 3. To act in the best interests of the company. 4. To act for a proper purpose [ mark] Which of the above statements is correct? 1 and 2 1,2 and 3 1,3 and 4 2, 3 and 4 (а) (b) (c) (d) Question 16. Which of the following statements is false about partnerships? (a) (b) (c) (d) partnership mark] The partnership relation is fiduciary One partner can bind all the other partners in contract A partner is liable for all the crimes committed by another partner A retiring partner can be liable for what the other partners do after they leave the Question 17 Which of the following resolutions is least likely to breach the equitable limitation on majority voting power? A resolution passed by the majority to improperly take away the company's property mark] (а) (b) A resolution passed by the majority to prevent the company from bringing legal proceedings against the majority A resolution passed by the majority which will benefit the majority without disadvantaging the minority. A resolution passed by the majority to amend the constitution to force the minority to sell their shares (c) (d)

Answer 1

Q 13.

Debt Capital as the name suggests is a capital raised by taking a debt/ loan. Since its a loan taken so it has to be repaid at a future date. Person/ organization giving the loan/ debt is a creditor for the company accepting the loan amount.

If the organization/ person providing the loan is doubtful about the repayment of the loan amount on the due date, it will think of taking some security from the debtor so that his loan amount is not at risk and the creditor gets the amount even if the debtor company defaults. Such creditors who give loans and take some security in return are known as secured creditors.

Secured Creditors get the preference of getting repaid by taking some action against the security asset (like property) etc. that is, to recover the amount secured creditor might sell off the property (after completing all legal formalities as required) kept as security with him for the loan given to him so, the correct answer is (c).

Secured Loan is one in respect of which the company has given special rights over its property to a creditor that can be used by a creditor to recover the owed amount.

Q14.

Issuing New Shares for the company generally is to raise capital for the company. There can be various other reasons like the company has expansion plans or the company might need new capital for additional workload coming in etc.

Also, Owning Company shares have some rights associated with it and due to that issuance of shares becomes a very sensitive decision for the company. Apart from raising capital, it gives some rights in the company to the shareholders so, the company management is generally very careful about who is purchasing their company shares because if a single person or a single Company purchases a majority of shares, then the company's controls go to the purchaser of majority shares. In such cases, sometimes Companies take a decision to issue new shares so that the ownership rights of that particular majority owner is diluted. For example Company 'A' initially issued 100,000 shares of $ 10 each and Company 'B' purchased 50,000 shares of Company 'A' that is, 50% rights/ controls of Company 'A' is in Company 'B's' hands. So, if Company 'A' does not want to lose control then they might make a decision to issue 50,000 new shares. Now, the total issued capital of the company is 150,000 shares and the company is still holding 50,000 shares only that is, now they have only 33% share/ rights in company 'A' unlike 50% earlier. So the correct answer is (a)

Q15.

Section 181 of the Corporations act 2001 (cth) requires directors and officers to act in good faith, in best interests of the company and for a proper purpose so, the correct answer is (c) that is, statements 1, 3 and 4 are correct.

Q16.

A partnership is a type of formal arrangement made by two or more people to come together for a common purpose like a business. Depending upon their legal agreement or arrangements/ mutual understanding between them, partners can bind each other by their acts as long as the acts related to their business. For example, any individual is involved in illegal activities and is using his partnership concern's name for that illegal business of his then all partners will be held responsible for the illegal acts done by him (even if it is without the knowledge of other partners)

Further, once any of the partners leave the partnership business or retires from partnership business, he/ she can not be held responsible for the acts of the partners/ business after his leaving the partnership firm so, the correct answer is (d) that is, retiring partner can be liable for what the other partners so after they leave the partnership is a false statement.

Q17.

Equitable Limitation is a term used to define the powers held by the majority groups in case of any mismatch of opinions and there are groups in favor or against a decision in an organization/ management etc. In a company when there are so many shareholders and many of them are participating in the company's day to day working also, then they are bound to have a difference of opinions. In this case, there should not be situations wherein, the majority of people get together and take a wrong decision (which might affect negatively to the company or minority group). To prevent such a situation, equitable limitation kind of resolutions are in place and the minority group can involve court for the legal proceedings.

Any situation that is least likely to breach this equitable limitation would be where the majority takes a decision in favor of the company/ majority but does not impact the minority negatively so the correct answer is (c)