13. Directors, Written Constitution & Prospectus

Question 1

Describe the powers of directors

Answer 1

• have the right to issue shares
• have the right to borrow money
• have the right to appoint and dismiss the senior managers of the company

Question 2

Outline the duties of directors

Answer 2

• a director must carry out their duties with reasonable care and diligence
• a director must act in the best interest of the company
• a director must not take improper use of their position to gain an advantage for themselves or for another person
• a director must not take improper use of the information obtained as a director to gain an advantage for themselves or for another person
• a director must ensure that a company does not trade when it is insolvent

Question 3

Explain the purpose of a written constitution

Answer 3

• a set of rules for the management of a company
• can be used to modify or completely replace the replaceable rules
• is a contract between the company, the shareholders and the directors
• all parties agree to follow the rules set out in the constitution

Question 4

Describe the nature of replaceable rules

Answer 4

• the Corporations Act contains a set of rules, known as replaceable rules, which can be used to manage a company
• a company can choose to have its own constitution and one or more of the replaceable rules.
• the appointment and removal of directors
• how a shareholder can obtain the right to inspect the accounting records
• how voting is to be carried out at the meeting of shareholders
• who has the authority to approve the payment of a dividend

Question 5

Describe the nature of a prospectus

Answer 5

• a document issued by a public company that invites the public to purchase the shares or debentures of that company
• must contain all the information that an investor would reasonably expect it to contain in order to make an informed assessment of the future prospects of the company
• financial information about the company, such as, the assets and liabilities of the company and the recent and expected future sales
• the number of shares that are being offered for sale and the offer price
• key facts about the directors of the company
• an application form that investors wishing to apply for the shares must complete & return to the company