John, Lesa, and Tabir form a limited liability company. John contributes 60% of the capital, and Lesa and Tabir each contribute 2%. Nothing is decided about how profits will be divided. John assumes that he will be entitled to 60% of the profits, in accordance with his contribution. Lesa and Tabir, however, assume that the profits will be divided equally. A dispute over the profits arises, and ultimately a court has to decide the issue.

Use the IRAC structure to identify issues and apply law and facts to the case. The IRAC method has four steps:

Identify the issue.

Relevant law – Here you need to explain the law, not just state it. This could be sections/s of the Corporations Act or case law.

Application to the facts – the law is applied to the facts of the problem.

Conclusion

What law will the court apply?

In most states, what will result?

How could this dispute have been avoided in the first place?

 

 

Sample Solution

Issue: The court must determine how to divide the profits of a limited liability company between its members.

Relevant Law: The governing law that will be applied in this case is the Corporations Act, which governs the operation of companies and their shareholders. Section 125 states that “the profits arising from the operation of a company shall be divided among its members according to the terms set out in the company’s articles of association or by unanimous agreement of all members”.