CorporateLaw

2016

VOO

Week1–RegulatoryFramework&Registration................................................11TodaysLecture............................................................................................................11Lipton,HerzbergWebsite........................................................................................11Assessments.................................................................................................................12Whyiscompanylawimportant?...........................................................................12Theroadtocompanylawharmony...............................................................................13Section51(xx)oftheAustralianConstitution...........................................................14Historyofcompanylaw.......................................................................................................14JointStockCompanies..........................................................................................................14CompanylawincolonialAustralia.................................................................................15QuestforCth/StateUniformity........................................................................................15QuestforCthControl............................................................................................................16NSWvCth(1990)....................................................................................................................16Cases............................................................................................................................................16Regulators.................................................................................................................................17TheAustralianSecurities&InvestmentsCommission..........................................17Whatisacompany?...............................................................................................................18ConceptsofaCompany........................................................................................................19SalomonvSalomon&CoLtd[1897]AC22................................................................20LeevLee’sAirFarmingLtd[1961]AC12...................................................................22MacauravNorthernAssuranceCoLtd[1925]AC619..........................................23CEPUvQueenslandRail[2015]HCA11......................................................................23

Piercingthecorporateveil.....................................................................................24a)Wherecompanyusedtoavoidexistinglegalduty.............................................25b)Insolventtrading...............................................................................................................26c)Liftingthecorporateveilofgroupcompanies.....................................................27d)Corporateliabilityforcrimesandtorts..................................................................27Thecompanycomparedwithotherformsofbusinessorganisations............29

TypesOfBusinessStructures.................................................................................29Factors.........................................................................................................................................29Company....................................................................................................................................30SoleProprietor/Trader.......................................................................................................30Partnership...............................................................................................................................30JointVenture............................................................................................................................31Trust.............................................................................................................................................31CompanyorAlternativeBusinessStructure?............................................................32

TheProcessofRegistration(orIncorporation)..............................................33HowToCreateACompany................................................................................................33Theeffectofregistration.....................................................................................................33SeparateLegalEntity–SoWhat?....................................................................................34

Revision.........................................................................................................................34Benefitsofincorporation....................................................................................................37Whatmakesacompanytheperfectinvestmentvehicle.......................................37

Week2–Companies,ConstitutionandReplaceableRules..............................38TodaysLecture............................................................................................................38

CompanyTypes.......................................................................................................................38CompanydefinedbyTwoCharacteristics...................................................................38Companylimitedbyshares................................................................................................39Companylimitedbyguarantee........................................................................................39Unlimitedcompany...............................................................................................................39NoLiabilitycompany............................................................................................................39

Public&ProprietaryCompanies..........................................................................40Distinction.................................................................................................................................40ProprietaryCompanies........................................................................................................41Test(2>Requirements)......................................................................................................41

ASXListedCompanies...............................................................................................42HoldingandSubsidiarycompanies......................................................................43Testinfindingacompanyasubsidiaryofaholdingcompany:.........................43Controlledentities.................................................................................................................44

CONSTITUTION&REPLACEABLERULES............................................................45InternalGovernanceRules.................................................................................................45WhenaCompanyisUsingOldorNewRegime.........................................................46

ReplaceableRules......................................................................................................46Constitution..................................................................................................................47Adoption&alterationoftheconstitution....................................................................48Limitsonrighttoalterconstitution:CorporationsAct..........................................48LimitsonrighttoalterConstitution:Commonlaw.................................................49GambottovWCPLtd(1995)ACLC342.........................................................................50(1)Testifalterationdoesnotinvolveexpropriationofshares.....................51

Gambotto’scase:Test...........................................................................................................51(2)Testifalterationdoesinvolveexpropriationofshares.............................51

NonComplianceWithInternalGovernanceRules..........................................52StatutoryContract......................................................................................................53Limitationsonenforcementofthestatutorycontract...........................................53Singledirector&shareholdercompanies...................................................................54

Revision.........................................................................................................................54TutorialQuestion,Chapter3,Question2....................................................................55TutorialQuestion,Chapter4,Question2....................................................................55TutorialQuestion,Chapter4,Question3....................................................................56

Week3–ThirdParties&Pre-RegistrationCTs...................................................58Today’sLecture...........................................................................................................58Companycontracts....................................................................................................58Twowaysofacompanyenteringintoacontract:...........................................59(2)ContractingthroughanAgent...................................................................................60ActualAuthority.................................................................................................................60

ApparentAuthority...............................................................................................................62ThirdPartyarguingaCTisvalid:...............................................................................63

CorporateLiabilityforCrimesandTorts...........................................................68PromotersandPre-RegistrationContracts.......................................................69PromotersandtheirDuties...............................................................................................70Whoisapromoter?..........................................................................................................70DutiesofPromoters.........................................................................................................71Conflictofinterest&disclosure..................................................................................71Remediesforbreach........................................................................................................71

BeforeRegistration................................................................................................................72AfterRegistration...................................................................................................................72Liabilityforpre-registrationcontracts.........................................................................72Ratification&Elements........................................................................................................73Person’sliabilityinabsenceofratification(S131(2))..........................................73Person’sliabilityevenwithratification(S131(4)).................................................74

SummaryofPre-RegistrationCTs........................................................................74FundraisingbyIssuingShares...............................................................................75Whenismemberapprovalrequired?............................................................................75Ch6DDisclosureRequirements......................................................................................76Whyisdisclosureneeded?............................................................................................76DisclosureDocuments.....................................................................................................77Exceptions–DoNotNeedDisclosure......................................................................77Consequencesofbreachofdisclosurerequirements........................................77Defences................................................................................................................................78

Revision.........................................................................................................................78TutorialQuestion,Chapter5,Question3....................................................................78Answer...................................................................................................................................79

TutorialQuestion,Chapter7,Question3....................................................................79Week4–Shares,Memberships&Dividends........................................................81Today’sLecture...........................................................................................................81Shares.............................................................................................................................81Whatisashare?......................................................................................................................81Classesofshares.....................................................................................................................82Variationofclassrights.......................................................................................................86CorporationsActs.246(c)..............................................................................................88

Challengingavariationofclassrights...........................................................................88ShareCapital................................................................................................................89Whatissharecapital?...........................................................................................................89Maintenanceofsharecapital:...........................................................................................89ReducingShareCapital........................................................................................................90Permittedsharecapitalreductions(s.256B)........................................................90Permittedsharebuybacks(s.257A).........................................................................93Permittedfinancialassistance(s.260A)..................................................................94

Membership(9)..........................................................................................................97Liabilityofmembers.............................................................................................................99

Dividends(10)...........................................................................................................100Whataredividends?...........................................................................................................100Canshareholdersforcepayment?.................................................................................100Remediesforimproperdividendpayments........................................................102

Revision.......................................................................................................................103Week5–Debentures,PersonalPropertySecurities&Directors................106Directors.....................................................................................................................106FinancingCompanies..............................................................................................106PartB–DebtFinance..............................................................................................108TypesOfDebtCapital.........................................................................................................1091. Loan..............................................................................................................................1092. Debenture..................................................................................................................109

Debentures..............................................................................................................................110

DebentureElements:.....................................................................................................112CompanyCharges(SecurityInterests).......................................................................113PersonalPropertySecurities......................................................................................113RegistrationOfSecurityInterests............................................................................116PriorityRules....................................................................................................................117Summary:PPSADefaultpriorityrules...................................................................118Circumstanceswheresecurityinterestsmaybeinvalidatedandchallenged...........................................................................................................................118

Directors.....................................................................................................................119TypesOfDecisions...............................................................................................................119TwoOrgans.............................................................................................................................119Directors’Decision-MakingPowers.............................................................................120Members’“Reserved”DecisionMakingPowers.....................................................121TheRoleOfCompanyOfficers:Directors..................................................................121WhocanbeaDirector?.................................................................................................122Functions.............................................................................................................................122

TheRoleOfCompanyOfficers:Secretary..................................................................122WhocanbeaSecretary?...............................................................................................122Appointment&Function..............................................................................................122

TypesofDirectors................................................................................................................123Whocanbeappointedasadirector?......................................................................124Howaredirectorsappointed?...................................................................................124Howaredirectorsremoved?......................................................................................124Howcanadirectorbedisqualified?........................................................................125

BoardMeetings.....................................................................................................................125Canboardsdelegatetheirpowers?.........................................................................125Responsibilityofdirectorsforactionsofdelegate...........................................125

Week6–CorporateGovernance&DutiesofDirectors...................................128CorporateGovernance...........................................................................................128DirectorsDuties........................................................................................................134CategoriesofDuties.................................................................................................136DifferencesbetweenGeneralLawandStatutoryDuties....................................138WhoOwesTheDuties........................................................................................................139WhoAreTheDutiesOwedTo.........................................................................................140DutyToIndividualShareholder................................................................................140

WhoEnforcesTheDuties.................................................................................................140ConsequencesOfBreachingADuty.............................................................................140

DutiesOfCare,Skill&Diligence..........................................................................140DutyOfCare:s180;Law;CT...........................................................................................140WhoOwesTheDuty.......................................................................................................141WhatStandardOfCareIsExpected.........................................................................141TheReasonablePersonStandard.............................................................................143WhenAppointedBecauseOfAParticularSkill..................................................145

BreachOfDutyOfCareWhere:......................................................................................145Defences...................................................................................................................................146(2)Delegation&Reliance............................................................................................147

DutyToPreventInsolventTrading:s588G....................................................149S588G:4Elements..............................................................................................................150WhoOwesTheDuty............................................................................................................150

TypesOfDebtsThatCanBeIncurred.........................................................................150WhenADebtIsIncurred..............................................................................................151

WhenACompanyIsInsolvent........................................................................................152RebuttablePresumptionsOfInsolvency...............................................................153ReasonableGroundsForSuspectingInsolvency...............................................153

DefencesforInsolvency.....................................................................................................154(1)Reasonablegroundstoexpectsolvency.........................................................154(2)Reasonablerelianceoninformationprovidedbyothers.......................155(3)Absencefrommanagement.................................................................................155(4)Reasonablestepstopreventincurringofdebt...........................................156

Revision.......................................................................................................................156Week7–CorporateGovernance&DutiesCont................................................1591)DutiesOfLoyalty&GoodFaith:S181(1)(a)..............................................159

‘GoodFaith’Meaning.....................................................................................................160Stakeholders......................................................................................................................160WhatAreTheCompany’sInterests.........................................................................160

Summary..................................................................................................................................1622)DutyToExercisePowersForAProperPurpose:s181(1)(b).............162i)WhatPowersDoDirectorsHave...............................................................................162ii)ProperPurposeTest/Elements..............................................................................163Example:PowerToIssueShares26:14.................................................................163MixedPurposesAndThe‘ButFor’Test................................................................164

iii)OtherExamplesOfImproperPurpose.................................................................164ConsequencesOfBreach:DutyToActInGoodFaithAndForProperPurpose........................................................................................................................165DutyToRetainDiscretion.....................................................................................166DutyToRetainDiscretion................................................................................................166

ConflictsOfInterestAndDisclosure–Ch13.3...............................................166CommonLawDuties...........................................................................................................167i)WhoOwesTheCommonLawDuties?...............................................................167ii)CommonLawConflictRule...................................................................................167

DutynottoMisuseConfidentialInformation.................................................173ConstitutionEffectsOnDuties.............................................................................173StatutoryDuties:CorporationsAct....................................................................174(1)DutyToDiscloseMaterialPersonalInterest:S191......................................174a)WhatIsTheStatutoryDutyOfDisclosure......................................................174b)MaterialPersonalInterest.....................................................................................174c)ExemptedInterests...................................................................................................175d)Standingnotice–onewaythatthisnoticecanbegiven..........................175e)Entitlementofinteresteddirectortovote......................................................175f)ConsequenceofBreach............................................................................................176

(2)DutyNotToMisuseInformationOrPosition–Ss182And183..............176a)Whoowestheduty?..................................................................................................176b)Whenisthereimproperuseofpositionorinformation?........................176c)Togainadvantageorbenefit.................................................................................177ConsequenceofBreach.................................................................................................177

(3)RelatedPartyTransactions-Ch2E......................................................................178a)Financialbenefitstodirectorsofpubliccompanies...................................178b)Howtosolvearelatedpartytransactionproblem.....................................178

c)Definitions.....................................................................................................................178d)Exemptions...................................................................................................................179e)Memberapproval(finalstep)...............................................................................180f)Consequenceofbreach.............................................................................................181

RemediesAndPenaltiesForBreachOfDuty:Ch.13.6................................181WhoEnforcesTheDuties.................................................................................................182EnforcementOfDirectorsDutiesByASIC.................................................................182(1)PrescribedOffences................................................................................................182(2)CivilPenaltyProvision...........................................................................................183

ExonerationAndReliefFromLiabilityForBreachOfDuty:Ch.13.7.....186WhenCanReliefFromLiabilityBeGivenByTheCourt......................................186WhenCanABreachOfDutyBeRatifiedByTheCompany(Shareholders)186WhenCanBreachOfDutyNotBeRatifiedByTheCompany............................186InsuranceForBreachOfDuty.........................................................................................187ProhibitionOnIndemnificationForBreach.............................................................187

Week8–Shareholder’sMeetings...........................................................................189TypesOfMember’sMeetings(Members=Shareholders).................................189WhoCanRequestAMembers’Meetings....................................................................1891)Board...............................................................................................................................1902)SingleDirector............................................................................................................1903)Members........................................................................................................................1904)ACourt............................................................................................................................190ProperPurposeRequirement....................................................................................191

WhatIfProperNoticeIsNotGiven..............................................................................192WhatAreTheNoticeRequirements............................................................................192Whomustbegivennotice?.........................................................................................192Howmuchnotice?...........................................................................................................192Whatmustbeincluded?...............................................................................................192

WhatIfProperNoticeIsNotGiven..............................................................................194ConductingMeetings..........................................................................................................194Chairperson’sresponsibilitytoconductmeeting.............................................195PeopleintheMeetings..................................................................................................195ConductingMeetings.....................................................................................................196MemberVoting.................................................................................................................196

Week9–Shareholder/MemberRemedies..........................................................198Part1:Members’StatutoryRightsAndRemedies........................................198MembersStatutoryRights................................................................................................198(1)StatutoryDerivativeAction:s236...................................................................198

Member’sStatutoryRemedies.......................................................................................207ShareBuy-Out...................................................................................................................207ReplacementofDirectors............................................................................................208AppointaReceiver..........................................................................................................208AuthorisationofLegalActionbeCommenced...................................................208DirectornottoParticipateinManagement.........................................................208AlterationofConstitution............................................................................................208Winding-Up........................................................................................................................209StatutoryInjunction.......................................................................................................210StatutoryRightToInspectCompanyBooks........................................................210OtherRights.......................................................................................................................211

ShareholderRemediesinAction...................................................................................211PartB:Member’sPersonalRightofAction.....................................................212Member’sPersonalRightofAction..............................................................................212

TutorialQuestions...................................................................................................212Week10–ASICInvestigations;CorporateInsolvency;Receivership........216ASICInvestigationPowers(Ch.21)....................................................................216SourceOfASICInvestigatoryPowers..........................................................................216PowersToQuestionPersons..........................................................................................217PowersToInspectCompanyBooks.............................................................................218ConsequencesOfInvestigations....................................................................................218

CorporateInsolvency..............................................................................................218TypesOfExternalAdministrationForInsolventCompanies...........................2191)Receivership.....................................................................................................................220Revision...............................................................................................................................223

2)VoluntaryAdministration...........................................................................................2243)Liquidation/WindingUp.............................................................................................232Members’VoluntaryWindingUp.............................................................................234Creditors’VoluntaryWindingUp.............................................................................236CompulsoryWindingUpInInsolvency.................................................................237CompulsoryWindingUpOnGroundOtherThanInsolvency......................240

Deregistration...........................................................................................................251RevisionLecture.......................................................................................................252ExamRevision...........................................................................................................254AbouttheExam.....................................................................................................................254PracticeExams......................................................................................................................255

Week1–RegulatoryFramework&Registration

Ø RegulatoryframeworkØ RegistrationanditsEffects

TodaysLecture• Introduction&coursedetails• HistoryofCompanyLaw• Whatisacompany?

o Separatelegalentityo LimitedLiabilityo Perpetualsuccession

• Liftingthecorporateveil• Thecompanycomparedwithotherformsofbusinessorganizations• Companyregistration

o Howcompaniesarecreated

Lipton,HerzbergWebsite• Theauthorsofthetextbookalsohaveawebsiteathttp://www.lipton-

herzberg.com.au/index.htm.• Youwillfindpracticequestionsandothermaterials,including

informationonnewdevelopments,onthesesites.• Pleasenote:

o Usageofthesesitesisoptional.Theysupportthepersonallearningprocessesofstudents.MLL221lecturerswillnotreferencetheseinlecturesorassessments.

Assessments

Whyiscompanylawimportant?• Companiesareessentialactorsintheeconomy–theyaretheentityof

choiceforbusinessandcommerceinAustraliaandinternationally.• “Thelimitedliabilitycorporationisthegreatestsinglediscoveryof

moderntimes.Evensteamandelectricityarelessimportantthanthelimitedliabilitycompany”.

• NMButler,PresidentofColumbiaUniversity,quotedbyALDiamondinOrhnial(Ed),LimitedLiabilityandtheCorporation(1982)at42.

• “Wemaythinkthisisaratherextravagantclaim,butitsgeneralthrustisclear,andtelling:theimportanceofthecorporateformandoflimitedliabilityoverthepastcenturyandahalfhasbeenimmeasurable;thegreaterpartofthecommercialexpansion,thescientificdevelopmentandthemanyotherachievementswhichhavechangedtheshapeofsocietyduringandsincetheindustrialrevolutionhavecomeaboutthroughthemediumofthelimitedcompany”

o LSSealy,CompanyLawandCommercialReality(1984)at1.• ItIsanimportantinstitution,entityandconcepttograsp.

Theroadtocompanylawharmony

• Today,companiesareregulatedbyCommonwealthlegislation,theCorporationsAct2001(Cth)

o Hasnotalwaysbeenthisway.Prefederationandtheyearsfollowing1901,companiesinAuswereregulatedbyStatestatues.

o Thismeansthattherewereatleast7bitsofstatelegislationsayingwhatacompanywas/whatitcouldtoetc.

o WhataregulatoryburdenthiswouldhavebeentohaveacompanyoperatinginMelbourne,alsootherstates,andalsomustbeconcernedwithlawsnotjustinitshomejurisdictionbutothersaswell.

o Statesagreedtoadoptsimilarlegislation.Howeveraftertimeinvariablytherewerechangesanditnevergottoasysteminwhichtherewasonecompanylawacrosstheboard.

o Thisdidn’thappenuntil1989.• In1989theCommonwealthtriedtotakecontrolandlegislateforall

States(sotherewouldbejustonepieceoflegislation)• Problem:s.51(xx)oftheAustralianConstitution

o Constitutionalvaliditywaschallengedin1989onthebasisthatCthdidnothaveauthorityunders5120tolegislateinrelationtocompanies.

• HCinNSWvCth(1990)saidtheCommonwealthdidnothavethepowerunders.51(xx)oftheConstitutiontolegislateinrelationtothe‘incorporation’ofcompanies

• Afterthis,theStatesallagreedtorefertheirpowersinrespectofcompaniestotheCommonwealth

• CommonwealththenpassedtheCorporationsAct(2001)Cth

Section51(xx)oftheAustralianConstitution• s.51(xx)empowerstheCommonwealthParliament(i.e.nottheStates)to:

o “Makelaws...withrespectto...foreigncorporations,andtradingorfinancialcorporationsformedwithinthelimitsoftheCommonwealth”

• HChadacloselookatthissectionandheldthislegislationwasinvalidandtheCthhadnolegitimaterighttolegislateinregardstothis.

• Question:o WhywouldthissectionoftheAustralianConstitutionpreventthe

CommonwealthParliamentfrommakinglegislationinrelationtocompaniesforthewholeofAustralia?

§ Theword‘formed’,meaningthatCthcouldonlylegislatewithregardstocompaniesthatwerealreadyinexistence.

• http://www.austlii.edu.au/au/legis/cth/consol_act/coaca430/s51.html• http://www.aph.gov.au/About_Parliament/Senate/Powers_practice_n_pr

ocedures/Constitution/par5cha1

• Thislegislation(1)setouttheprocessofincorporationbyregistration–theprocessthatwewillgothroughingroupassignment–ofcreatingacompany.

Historyofcompanylaw• 15thCenturyà

o CorporateAggregatescreatedbyRoyalChartergrantedtomonasteries,boroughsandtradeguilds

• Revolutionof1688o CompaniescreatedbyPrivateActsofParliament

JointStockCompanies• 17thCentury

o JointStockCompanieso Unincorporatedentitieso Basisofthemoderndaycompany:o Sharestransferableo Votingrightsattachedtoshareso Profitsdistributedthroughdividends

à• BubbleAct1720(UK)

o Speculationinjointstockshareso SouthSeaCompanyo BubbleAct–confinestradingtothesaleofsharesinformally

incorporatedbodiesà

• 1825o BubbleActrepealed

à

• 1844–Incorporationbyregistrationo i.e.notbyRoyalCharterorActofParliamento DistinctlegalentitywithperpetualsuccessionBUTshareholders

didnothavelimitedliabilityo “...legislativeancestorofmoderncompanylaw.”(Ford,p41)

à

• LimitedLiabilityAct1855o Liabilityofinvestors‘limited’totheamounttheyagreedtoinvesto Catalyst:largeamountofcapitalrequiredtofinancenewrailwayso Limited’atendofcompany’snamewarnedofshareholder’s

diminishedliabilityo Today:o Ltdo PtyLtd

CompanylawincolonialAustralia• CompaniesAct1862(UK)

o AdoptedbyAustraliancoloniesastheircompanylawà

• Late19thCVictorianDevelopmentso NeedforcapitaltofundgoldminingprompteduniqueVictorian

companylawdevelopmentso 1871–noliabilityminingcompanyo 1896–failuresinthe‘landboom’leadtorestrictionson

‘proprietarycompanies’–compulsoryauditandannualpresentationoffinancialstatements

à• 1901-Federation

o s.51(xx)Constitutiono TheParliamentshall...havepowertomakelaws...withrespectto:

-...Foreigncorporations,andtradingorfinancialcorporationsformedwithinthelimitsoftheCommonwealth

o EachStateretaineditsowncompanylegislation

QuestforCth/StateUniformity• 1961–62cooperativeregime

o Statesenacteduniformcompanieslegislationo ButtheStateActswerenotuniformandvariationsincreasedwith

time• CompaniesAct1981(Cth)

o CthParlenactedCompaniesAct1981(Cth)(lawinACTandNTpers.122ofConstitution)

o EachStateenactedaCompaniesCodethatwasuniformwiththeCthCompaniesAct

QuestforCthControl• CorporationsAct1989(Cth)

o CthlegislatedindependentlyoftheStatestointroduceanationalscheme

à• NSWv.Cth(1990)

o HCheldthattheCthlackedpowerundertheConstitutiontomakelawsabouttheincorporationofcompanies

NSWvCth(1990)• Doess.51(xx)oftheConstitutiongranttheCommonwealththepowerto

makelawsinrelationtothe‘incorporation’ofcompanies?• s.51(xx)empowerstheCthParlto:• “makelaws...withrespectto...Foreigncorporations,andtradingor

financialcorporationsformedwithinthelimitsoftheCommonwealth”• MajorityoftheHighCourt(6:1)• Theword‘formed’isusedinthepasttensetorefertocompaniesthat

havealreadybeenincorporated.• ThismeanstheCommonwealthcannotrelyons.51(xx)tomakelaws

aboutbringingnewcompaniesintoexistence(i.e.theprocessofincorporatingcompanies)

• “Thepowerconferredbys.51(xx)tomakelawswithrespecttoartificiallegalpersonsisnotapowertobringintoexistencetheartificiallegalpersonsuponwhichlawsmadeunderthepowercanoperate.”(para8)

Cases• 1991Cooperativescheme–CorporationsLaw

o CthamendedtheunconstitutionalCorporationsAct1989–calledthe‘CorporationsLaw’

o EachStateenactedlegislationwhichadoptedtheCorporationsLawtobeitsCorporationsLaw

o CthauthorisedtheASC(nowASIC)toexercisepowersconferredbystatelegislation

o Cross-vestingofjurisdictionincorporationslawmattersintheFedCtandstateSupremeCourts

• ReWakim(1999)o HCheldthecrossvestingofjurisdictionwasunconstitutionalto

theextentitconferredjurisdictionontheFederalCourtwithrespecttomattersunderstatelaw(i.e.theCorporationsLawofeachstate)

• Rv.Hughes(2000)

o HCcastdoubtontheconstitutionalityofaschemebecauseitinvolvedthestates(undertheirrespectiveCorporationsLaws)conferringpowersonCommonwealthofficers

• CorporationsAct2001(Cth)o StatereferralofpowertotheCommonwealthunders.51(xxxvii)

Constitutiono Actcommencedoperationon15July2001

• RecentDevelopmentso Whatisa‘corporation’forthepurposeofs.51(xx)ofthe

Constitution?o Consideredin2015bytheHighCourtinQueenslandRailcase

Regulators• TakeoversPanel

o Publiccompaniesinatakeoversituation,lookingtocomplywithrulesinCorporationsAct.

o Ifthereisadisagreementintowhatonecompanyisdoinginatakeover,regardlessofbeingregulatedbytheASIC,theydonotgotoCourtstoresolvethedisputebutgotoatakeoverspanel.

§ Apanelof5membersgenerallycorporatelawyersinlargefirms,andtheirroletositasabodyandlooktowardscompaniesaredoinginatakeoversituation.Iffindinganissue,theyhavethepowertodeclareunacceptablecircumstancesandthroughthismechanism,thecompaniesarebroughtintoline.

• AustralianStockExchangeo Acompany.o WhenapubliccompanywantstolistonASX,oneofthethingsthey

mustdoisagreeasacontracttocomplywiththelistingrules.§ Anotherimportantsourceofregulating,whatpubliclylisted

companiescanandcannotdo(thisisoverandabovetheCorporationsAct).

§ Adsalayerofprotectiontoshareholdersforpubliccompanies.

• AustralianSecuritiesandInvestmentsCommissiono Companywatchdogandregulatorresponsibleforregulationof

companiesandCorporationsActinAustralia.o ASICbringsprosecution

TheAustralianSecurities&InvestmentsCommission• CommonwealthAgency(b/creferralofStatepower)• ResponsibleforensuringtheCorporationsActiscompliedwith• Legislativeauthority:• ASICAct2001(Cth)• CorporationsAct2001(Cth)• Powersinclude:• InvestigatebreachesoftheCorpsAct

• Instigatecivilproceedingsandcriminalprosecutions(concurrentwithDPP)

• AdvisesministersonnecessarychangestotheCorpsAct• Educationalrole• Morethan2millionAustraliancompanies• 99%ofthesearecompanieslimitedbyshares• http://www.asic.gov.au/asic/asic.nsf

Otherregulators

• AustralianStockExchangeo PrivateCompanyo Publiccompaniesthat‘list’onthestockexchange‘contract’with

theASXthattheywillcomplywiththeListingRules• TakeoversPanel

o Apeerreviewbodywithatleast5memberso Importantpartofthemachineryforthecontrolofcompany

takeovers(formerly,thesepowerswereheldbytheCourts)o Haspowertodeclare‘unacceptablecircumstances’

Whatisacompany?

a)SeparateLegalEntity

• Onregistration,acompanybecomesaseparatelegalperson• (s.119)Acompanycomesintoexistence…

• (s.124)Legalcapacityof:o Naturalperson

§ Ownproperty§ Contract§ Sueandbesued

o Bodycorporate§ Issueshares§ Grantacharge

• QueenslandRailCase

ConceptsofaCompany

Consequencesoftreatingthecompanyasaseparatelegalentity

1. Company’sobligationsandliabilitiesareitsown,andnotthoseofitsparticipants

o Shareholdershavelimitedliabilityo Liabilityofshareholdersislimitedtotheamounttheyhavenot

paidontheirshares.o Soifashareholderhasfullypaidfortheshares–hehasnoliabilityo Ifonlypaid$1onasharethatwasissuedbyacompanyatthe

priceof$3–theshareholder’sliabilitywouldbelimitedtotheamountunpaidontheshare-$2

2. Companycansueandbesuedinitsownname3. Companyhasperpetualsuccession4. Company’spropertyisnotthepropertyofitsparticipants5. Companycancontractwithitsparticipants• Discuss3caseswhichdemonstratetheseconsequencesofbeinga

separatelegalentityorhavingseparatelegalpersonality

Debt&Equity• Debt

o Shares,Bank• Equity

o Stocks,property• Asinvestors/shareholders,therearerisks

àLimitedLiability

• Limitedliabilityo Acompanyisaseparatelegalentityandnaturalpersonbutits

obligationarethecompaniesobligations,andnottheobligationsoftheotherparticipantsofthecompany.Ifthegoldminecollapsesandcausesdeathsandinjuriestolotsofpeoplebecauseofthecompaniesnegligence,thecompanyhasliabilityandcanbesueditself.

o Itisnottheliabilityoftheparticipantsofthecompanyorshareholdersbutthecompanyinitself.

o Not‘unlimited’butlimited–thelimitontheshareholdersislimitedtotheamountunpaidontheirsharecapital.

§ Sharescanbepartlypaidandthecompanycancallonanyremainingunpaidshares.

§ Limited–shareholderscannotbesued.

SalomonvSalomon&CoLtd[1897]AC22[EXAM]

• Facts

o MrSwasthesoletraderofashoeandleatherbusinesso CoAct1862(UK)required7shareholderso Salomon&CoLtdincorporatedo MrS99%shareholderandmanagingdirector

§ Wantedtoretaincontrolofthecompany,heissued20,000tohimselfand6sharestohissons.

§ Inaddition,MrSisstillmanagingdirectorandsonsontheboard.

§ Thereisnotmuchchangefromoperatingasasoletraderthanabusiness.

o Businessoperatesforawhilebutthengoesintoliquidation.§ Liquidatorrecoupsdebtsowing.

o MrSsoldbusinesstoCoforcashandsecureddebt§ ThecompanyisjustacharadeandisstillSolomon–the

liquidatorcansueSolomondirectlyforthedebts.o Businessfailed,assetsofCoinsufficienttorepaysecured(MrS)

andunsecuredcreditors

• Argumentso Liquidatorarguedthatbecausethebusinessoperatedbythe

CompanywasthesameasthatoperatedbyMrS,andbecauseMrShadeffectivecontroloftheCompany,thecourtshouldholdMrSliableforthelosssufferedbytheCompany

• HouseofLordso Acompanyisaseparatelegalentityeventhoughasingleperson

managesandcontrolsito Acompanycancontractwithitscontrollingparticipants

“Thecompanyisatlawadifferentpersonaltogetherfromthesubscriberstothememorandum[shareholders];and,thoughitmaybethatafterincorporationthebusinessispreciselythesameasitwasbefore,andthesamepersonsaremanagers,andthesamehandsreceivetheprofits,thecompanyisnotinlawtheagentofthesubscribersortrusteeforthem.Norarethesubscribersasmembersliable,inanyshapeorform,excepttotheextentandinthemannerprovidedintheAct.”(LordMacnaghtenat51)

o Inrejectingtheagencyargument,LordHalsburyLCobserved:“Iobservethatthelearnedjudge(VaughanWilliamsJ)heldthatthebusinesswasMrSalomon’sbusiness,andnooneelse’s,andthathechosetoemployasagentalimitedcompany;andheproceededtoarguethathewasemployingthatlimitedcompanyasagent,andthathewasboundtoindemnifythatagent(thecompany).Iconfessitseemstomethatthatverylearnedjudgebecomesinvolvedbythisargumentinaverysingularcontradiction.Eitherthelimitedcompanywasalegalentityoritwasnot.Ifitwas,thebusinessbelongedtoitandnottoMrSalomon.Ifitwasnot,therewasnopersonandnothingtobeanagentatall;anditisimpossibletosayatthesametimethatthereisacompanyandthereisnot.”(31)

o HELD:LiquidatorwasunabletosueSolomonseparatelyasthe

companyisaseparatelegalentity.

LeevLee’sAirFarmingLtd[1961]AC12

• Factso Companyoperatedacropdustingbusinesso MrLeewasthemainshareholderandmanagingdirectorofthe

companyo MrLeewasalsoanemployeepiloto Whileworking,MrLeewaskilledinaplanecrasho MrsLeeclaimedshewasentitledtoworkerscompensation

becauseMrLeewasanemployeeo InsurerarguedMrLeecouldnotbeanemployeeandemployer

§ SaidthatthecompanywasjustMrLee,heowned99%oftheshares,wasthedirectorandthusyoucannothaveacontractwithyourself.Cannotbebothemployerandemployeeatthesametime,andhedoesnotfallundertheprovisionoftheWorkersCompensationScheme.

• PrivyCouncilo Acompanyisaseparateentityfromitscontroller–whomayalso

beitssoleemployeeo Acompanyisaseparatelegalentityandapersonmay

concurrentlyhaveavarietyoflegalrelationshipswiththatcompany

MacauravNorthernAssuranceCoLtd[1925]AC619

• Facts

o MacauraassignedrighttotimbertoaCompany,receivedsharesinconsideration

o Createdacompanyandsoldforestingrightstothecompany.§ Beforehedidthis,hehadaninsurancepolicyoverthetrees

tocoverthingslikefiredamage.§ Hesoldtherighttologtreesandrightstocompany,but

keptinsurancepolicyinhisname.o Timberdestroyedinfireo Macauraclaimedinsurance–policywasinhisindividualname,

notinnameoftheCompany• HouseofLords

o Shareholdersdonothaveaproprietaryinterestinacompany’sproperty

§ Itneedstobe‘yours’o Insurancelegislationrequiredpolicyholdertohavean‘insurable

interest’inthepropertyo Thecompanywastheownerofthetimber,notMacaura(meaning

hedidnothavean‘insurableinterest’andsocouldnotclaimontheinsuranceforthedamagedtimber)

• HELD:Company’spropertyisnotthepropertyofitsparticipants.Thecompanyisaseparatelegalentity,whateveristhepropertyofhisisnotthecompany’s,andvisaversainnoinsurableinterestinthesoldtrees.

CEPUvQueenslandRail[2015]HCA11• Whatisacorporationforthepurposeofs51(xx)oftheConstitution?

o Consideredin2015bytheHCinQueenslandRailCase.

• http://www.austlii.edu.au/au/cases/cth/HCA/2015/11.html• Facts

o WantstoexemptLaborcompanyfromCommonwealthIndustrialRelationsLegislation(FairWorkAct?)

§ TooeasyonemployeesandNewmanwantedthisauthoritytoadviserailwayemployeessubjecttoStateIndustrialRegulationslaw.

§ Wantedtocreateacompanyprovidinglaborhigherservicebutcannotbeacompanybecauseifso,itissubjecttoCommonwealthworkplacerelationslaw.

• QRTAAct2013(Qld)o GovtcreatedapieceoflegislationthatestablishedtheQueensland

RailTransitAuthority(theentity).§ Allthepowersofanindividual.

• SpecificallyincludingtoenterintoCTs,acquire,hold,disporeof,anddealwithproperty,employstaff,appointagentsandattorneys,andengageconsultants.

§ Maysueandbesuedinthenameitisgiven.§ “Notabodycorporate”

o Why?§ IfQueenslandRailisnota‘constitutionalcorporation’it

wouldnotbesubjecttoCommonwealthindustrialRelationsLaws(FWAct)

o UnionunhappyandchallengeitintheHC.§ QuestionwhethertheAuthoritywasaconstitutional

corporationandthussubjecttoCommonwealthindustriallaw.

§ Looktowardss51(20)§ Wasitatrading/financialcorporation?

o Whatisa‘corporation’?§ Isitacompanyornot?§ Factorslookingattomakethisdecision…

• HELD:hasessentialfeaturesofacompanyandthefactthestatutessaidotherwisewasirrelevant.Theylookedtowardsthesubstance.Itisatradingcorporation.ThestatutorydeclarationthattheRailwayisnotatradingcorporationisincorrect.

o Ifyouwanttocreateanentitythathasallthefeaturesofacompany,butnamedasacorporationtheyfailed.

o Isonly‘some’featurestomakesureitwasn’tacompany,sufficient?

• Looktowardsthejudgement:GagelerJetc.

Piercingthecorporateveil• Acompanyisaseparatelegalpersonality,Alltherulessettingitoutis

referredtoasthe‘veilofthecorporation’thatconfinedtheobligations/rights/liabilitiesofthecompanyonly,andnottotheparticipants.

o Inwhatcircumstance,ifany,canwepiercethecorporateveiltoattachliabilitytootherparticipantsinthecompany?

• MoneybagsPtyLtd/Assets=$2

o MoneybagsPtyLtdnegligencecausesinjurytoMrBump($1,000,000damages)

• MrMoneybags(Shareholder)/Assets=$2,000,000,000o MoneybagsPtyLtdhasinsufficientassetstopayMrBump.CanMr

Bump‘piercethecorporateveil’andrecoverdamagesfromthewealthyshareholder,MrMoneybags?

• Question:howdidhepiercethecorporateveiltorecoverdamagesfromtheshareholderMrMoneybags?

o Acompanyisaseparatelegalentityandyoucannot.o Havingsaidthat,inexceptionalcircumstancesunderthecommon

lawandlegislation,therearesomesituaitonswhichthelawpiercesthecorporateveilandallowscompanyliabilitytoattachtosomeparticipants.

• Corporateveilo Legalrulesthatgrantthecompany‘separatelegalpersonality’and

separatethecompanyfromitsparticipants(e.g.shareholders,directors)arereferredtoastheveilofincorporationorcorporateveil

o Salomon’scaseestablishedthatacompanyanditsparticipantsmustbetreatedseparately–i.e.thecorporateveilprotectsthecompany’sparticipantsfromliability

o ThisisthegeneralruleinAustralia• Onlyinexceptionalcircumstanceswillacourtpiercethecorporateveiland

disregardtheseparatelegalpersonalityofacompany• Commonlawexceptions

o Wherecompanyusedtoavoidexistinglegaldutyo Wherecompanyusedforperpetuatingafraud

• Statutoryexceptionso Insolventtradingo Debtsincurredastrustee

a)Wherecompanyusedtoavoidexistinglegalduty• Corporateveilmaybepiercedwherecompanyformedforsoleor

dominantpurposeofavoidinganexistinglegaldutyo OKtoformacompanytolimitpersonalliabilityforfuture

obligations,butnottoavoidexistingobligationGilfordMotorCoLtdvHorne

• Companyformedforsoleordominantpurposeofavoidinganon-competeclause

• Factso Operatedbusinessassoletraderandsoldmechanicsworkshopto

aTP.

o IntheCTofsale,wasarestraintoftradeclause.Clausetriedtoprotectthegoodwillthatthepurchasercquired–doingsobymakingsurethatassoonaspurchaseracquiredtheworkshop,thefirstwouldnotopenupasimilarbusinessinthelocalarea.

o Havingsoldthebusiness,hewantedtogetaroundthelegalobligation.

§ Heincorporatedacompanyandoperatedanewmechanicsbusinessthroughthenewcompany(asacompanyisaseparatelegalentity,andthenewbusinesswasthecompany’sbusinesstowhichhewasanemployeeto,andnot‘him’perse).

§ Whenthecompanywassuedbythepurchaser,hesaidhewasprotectedbythecorporateveil.

o Courtsaidhehadanexistinglegalobligationandcreatedacompanyinordertoavoidtheexistinglegalduty.Thus,inthiscasethecorporateveilisallowedtobepiercedandpreventthecompanyfromoperatingthatbusiness.

JonesvLipman• Companyformedforthesoleordominantpurposeofavoidingacontract

forthesaleandpurchaseofland

b)Insolventtrading• Insolvency=companycannotpayitsdebtsastheyfalldueforpayment• CorporationsActliftsthecorporateveilwhenacompanytradeswhile

insolventandimposespersonalliabilityondirectorsforthecompany’sdebts(s.588G)

• s.588G:o Directorsbecomepersonallyliableifthefailtopreventthe

companyincurringadebtwhentherearereasonablegroundstosuspectthecompanyisinsolventorthedebtwillrenderthecompanyinsolvent

o Defences–s.588Ho Topic5

• ImportantissuefortheDirectors–iftheygetthiswrong,thentheCorporationsActthrowstheveilawayandattachedthecompany’sliabilitytowardstheDirector.

o Ifthedirectorsallowthecompanytocontinuetradingifthecompanyisinsolventandcontinueincurringdebts,theDirectorsareliableforthedebtsincurredbythecompany.

•

c)Liftingthecorporateveilofgroupcompanies

• Companyowningsharesinothercompanies(subsidiarycompanies

underneathitetc.andlotsofdifferentcompanieswiththeParentatthetopofthehierarchy).

• Isaparentcompanyliablefortheobligations/debtsofthesubsidiary?No.Thecorporateveilcontinuedtooperateeveniftherearegroupcompanies.

• “…ThecourtisnotfreetodisregardtheprincipleofSalomonvSalomonmerelybecauseitconsidersthatjusticesorequires.Ourlaw,forbetterorworse,recognisesthecreationofsubsidiarycompanies,whichthoughinonesensethecreaturesoftheirparentcompanies,willneverthelessunderthegenerallawfalltobetreatedasseparatelegalentitledwithalltherightsandliabilitiesthatwouldnormallyattachtoseparatelegalentities:AdamsvCapeIndustriesPLC

• BHP–enteredintoaJVwithBraziliancompanyoperatingamine.Tragicaccidentthathaltedminegrowthandseverelydamagedtheenvironment.Itwasn’tBHP,butasubsidiaryofBHPintheJV.

o Usedasubsidiarytominimizerisk,andlimitliabilityoftheparentcompanyandalsogetprotectionofthecorporateveil.

Exceptions:LegislationthatliftsthecorporateveilofgroupcompaniesTotreatallentitiesinsidethecorporatetreeasoneentity:

• Holdingcompany’sliabilityforinsolventtradingbysubsidiary• Consolidatedfinancialstatements• Taxationconsolidation• Thebenefitofthegroupasawhole• Poolinginliquidation

d)Corporateliabilityforcrimesandtorts• Canacompanybeliableforacrimeornegligence?

• Howdowefindacompanyliable,canwelooktowardstheparticipantsofthecompany?

o Twomechanismsusedbythelawtotacklethisproblem:1) VicariousLiability2) DirectLiability

VicariousLiabilityAcompanyisaseparatelegalentitybutisliableforitsemployee’sactions:

• Legislationmayprovidethatcompanymaybeconvictedfortheactionsofitsagentswithouttheneedtoimputeaguiltyintenttothecompany

• Undercommonlaw,anemployer(i.e.Company)isvicariouslyliablefortheactsofitsemployeesinthecourseofemployment

• ActorispersonallyliableandcompanyisvicariouslyliableDirectLiability:OrganicTheoryTheemployeesintentislikelytorepresenttheintentofthecompany’s:

• Identifythewillofwhatacompanyisandthusyoufinditsintention.• Companymaybeprimarilyliablewhentheact/intentofapersonare

takenunderthe‘organictheory’tobetheact/intentofthecompanyitself• Companyliablefortheact/intentofemployees“whorepresentthe

directingmindandwillofthecompany,andcontrolwhatitdoes.”HLBolton(Engineering)vTJGrahamandSonsLtd[1956]

• Whetherpersonconstitutesthemindandwillofthecompanydeterminedoncase-by-casebasis

• SeniorityiskeyfactorTescoSupermarketsLtdvNattras[1972]AC153

• Facts

o Radiantwashingpowderadvertisedatsalepriceo Saleitemsallsold,shopassistantrestockeditems,butatfullprice

o Shopmanagernotawareofthiso Offenceunderlegislationtosellproductsathigherpricethanas

advertisedo Defenseavailableifduetoactoromissionofanotherpersono Tescoarguedthattheshopmanagerandshopassistantwere

‘anotherperson’§ Cannotattachtheactionsandmistakesofashopassistant

tothecompany.Itwasnotthedirectingmindandwillofthecompany.

• HouseofLordso Courtappliedthe‘organictheory’totheshopmanagerandshop

assistantandheldthatneitherrepresentedthedirectingmindandwillofthecompany

o Accordingly,theactsoftheshopmangerandshopassistantwerenottheactsofthecompany

Thecompanycomparedwithotherformsofbusinessorganisations

• Forfurtherdiscussion,followthelinkinNavigatortothelecturebyDanSimondson‘Choosinganappropriatebusinessstructure’

• Q:Whyarewetalkingaboutthis?• A:Thecompanystructureisthemostpopularstructureforoperatinga

business,butitisnottheonlyoption.Youneedtoknowwhatthealternativesareandwhentousethem.

TypesOfBusinessStructures• JointVenture• Trust• Company• ‘Separatelegalentity’• Soletrader• Partnership

Factors• Liability• Risk&Liability• Tax• Purpose• Size• Costs• Flexibility

Company• Pro

o Separatelegalentityo Limitedliabilityo Perpetualsuccessiono Flexibilityo Shareclasseso Liquidityo Finance

• Cono CorporationsActcomplianceo Establishmentandongoingcostso Shareholderslessinvolvedinmanagemento Publicdisclosurerequirements

SoleProprietor/Trader

• Individualconductshis/herownbusinesso Proo Simpleo Minimalestablishmentcostso Minimalregulatorycomplianceissueso Highlevelofcontrol

• Cono Nolimitedliabilityo Smallsizemakesraisingfinancedifficulto Limitedlifespan

Partnership• Carryingonabusinessincommonwithaviewtoprofit(s.5Partnership

Act)o E.g.alawpartnershipandputtogetheranoralorwritten

agreementtosetthebusinessstructureup.• Pro

o Minimalestablishmentcosts:onlyneedmeetdefinitionofpartnership

o Minimalregulatorycomplianceissueso Activeintheconductofthebusiness

• Cono Noseparatelegalentity:partnerscontractpersonallyforthe

partnershipo Risk:partnersincurdebts/obligationsonbehalfofotherpartners

i.e.jointandseveralliability.§ Withregardstothequestionofliability,ifthereare3

partnersandonebuysthingsonbehalfofthepartnership,

allhisfellowpartnersbecomeliableforthatdebt.Allthreearejointandseverallyliableforadebtofonepartner.Youdon’thavethisproblemwithalimitedliabilitycompany.

o Sizelimitedto20partners(subjecttoexceptions)

JointVenture• JVbetweentwocompanies/individualsregulatedbyonecontracttowork

togetherononeproject.• Notaseparatelegalentitylikeacompanyandthusdoesnotreceiveall

thebeenfitsthatgoalongwiththat.• Contractualrelationshipsimilartopartnershipbutrelationshipisnota

businessincommon

• Pro

o Severallyliability:i.e.obligationsandliabilitiescanbeindividualised(unlikepartnership)

o Inexpensivetocreateandmaintain• Con

o Nolimitedliabilityo Noperpetualsuccession

• AreJV’stransactional?o Typically,yes.o CompaniescanjointogetherforaJVandhighlighteachcompanies

strengthstocreateanadvantageousJV.

Trust• Arelationship,notalegalentity• Trustsareusedalotinbusinessstructures

o E.g.atrustee.• Manytypes

• Pro

o Beneficiarieshaveanequitableinterestintrustproperty;contrashareholderswhohavenolegal/equitableinterestincompanyproperty

o Ifyouwanttoshieldyourassets,putthingsintodiscretionaryorunittrusstotreatbeneficiariesdifferently.Thusthetrustcannotbesuedandassetsareheldbythetrust.

§ Beneficiariesmoneyisheldinthetrustandtrustofficersmanagethemoney

o Incomesplitting–butmaybecontrarytoanti-taxavoidance§ E.g.alargefamilyoperatingabusinessandthroughatrust

structuretheirscopetopayproceedstodifferentfamiliesreducesthetax

§ Taximplications–tryingtogetawayfrompayingtax• Con

o Maximumlifespanof80years(lawagainstperpetuities)o Beneficiarieshavelimitedpowers(unlikeshareholders)o Noseparatelegalentity;trustcannotholdproperty,contract,sue

orbesuedo Trusteepersonallyliable(mayhaverightofindemnityfromtrust

assetsandbeneficiaries)

CompanyorAlternativeBusinessStructure?Allabovebusinessstructures(besidescompanies)areallrelationshipsbuttheyarenotaseparatelegalentitythatreceivesbenefitsalongwithit.Insettingupacompany,thereareongoingregulatoryrequirements(e.g.CorporationsActcompliance).Largepubliccompanieshavealotmoreregulatoryrequirementsthanothersetc.Ongoingcostsrequirementsassociatedwithsettingupacompany.Theymustbeweighedup.Butultimately,thebestbusinessstructureisdebatablyreceivemorebenefitsthatanyabovebusinessstructure.TherearelargebenefitswithLimitedLiabilityCompanies,despiteongoingregulatoryrequirementsandregistration.

TheProcessofRegistration(orIncorporation)

HowToCreateACompany1. Lodgeapplicationform201withASIC&payfee

o HistoricallycompanieswereincorporatedbyKingsandQueens,butnowaredonethroughASICinarelativelystraightforwardprocess.

o Now,applicationforregistrationasanAustralianCompany.2. S117CAsetsouttheprescribedcontentsoftheapplication:

o Whethercompanyproprietaryorpublic,limitedliability,noliability,unlimitedetc.

o Proposeacompanynameo Members,numberofsharesandshareclasseso Directors

§ Pty–oneordinarilyresidinginAustralia;§ Public–minof3,2ordinarilyresidinginAustralia

o Secretary§ Public–musthave

o Consentsofmembers,directorsandsecretaryo Addressofregisteredofficeo Constitutionorreplaceableruleso Companyname

3. ASICregisterscompany,allocatesACN,issuescertificateofregistration

o ACNdifferentfromABN.ABNisataxnumber.4. Companycomesintoexistencewhenregistered(s119)

• Sharesissued

• GothroughASICform201• http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/201.pdf/$fil

e/201.pdf• Alternativeistobuya‘shelfcompany’

o Acompanyalreadyregisteredandsittingtherewithnominaldirections/shareholders.

o Detailscanbechanged.o Rulesforhowlongacompanycanstayinactive.

Theeffectofregistration• (s119)Onregistration,acompanybecomesaseparatelegalperson• (s124)Legalcapacityof:

o Naturalperson§ Ownproperty§ Contract§ Sueandbesued

• Bodycorporate

o Issueshareso Grantacharge

• S119:Acompanycomesintoexistenceasabodycorporateatthebeginningofthedayonwhichitisregistered

SeparateLegalEntity–SoWhat?• Company’sobligationsandliabilitiesareitsown,andnotthoseofits

participants• Companycansueandbesuedinitsownname• Companyhasperpetualsuccession• Company’spropertyisnotthepropertyofitsparticipants• Companycancontractwithitsparticipants• Apersonmayconcurrentlyhaveavarietyoflegalrelationshipswitha

company(e.g.director,shareholderandemployee)• Canchangetheattributes(shareholders,directors,type,nameetc.)ofthe

companyonceestablished.o ACNremainsthesame.

Revision• Tutorial

o Chapter1:§ Questions1to6

o Chapter2:§ Question1§ Question5

• Mentoro AttempttheMCQforChapters1&2inMentor

Question1:

•

Question2:

• Companyenteredinto3transactions,nowunabletopaydebts.