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Question: tangelo computers pty ltd tangelo was incorporated on 2 july...

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Tangelo Computers Pty Ltd (Tangelo) was incorporated on 2 July 2007. It has share capital of $500,000, which represents 500,000 shares issued for the price of $1.00 per share. Of those shares, 430,000 have been fully paid and 70,000 paid to 50 cents. The majority shareholder and chief executive of the company is Valerie Valencia.

In December 2015, Valerie Valencia's brother, Citrus, puts his small computer business up for sale. Tangelo is keen to secure the contract but cannot pay in cash. It is agreed that Citrus will be issued with 200,000 shares (with an issue price of $4.00) in return for his business.

A shareholders' meeting takes place on 5 September 2015. A special resolution is passed which states that the directors must not issue any additional shares in the company without the approval of the shareholders at a general meeting of the company.  In October 2015, Tangelo requires more capital to fund its expansion into Asian markets. The board of directors offers a fresh issue of 500,000 shares to its employees who are not presently shareholders of the company for an issue price of $2.00 per share.

No shareholder meetings are held to discuss or ratify any of the above decisions.

(a) Is the arrangement to purchase Citrus' business (by way of a share issue) legal? Why/why not?

(b) Comment on the legality of the board's decision to issue shares to Tangelo's employees.

(c) If Tangelo went into liquidation with 50 cents still being owed on some shares, would the shareholders who took up those shares be liable as contributories?

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