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Corporate Law > Lecture 1- Introducing companies > Flashcards

Lecture 1- Introducing companies Flashcards

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1
Q

How many companies are there in Australia?

A

2 million

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2
Q

How are companies created?

A

Through a process of registration under statue

-incorporation

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3
Q

How are companies legal persons?

A

=artificial legal persons created by incorporation

-they have rights like humans, they are and antity

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4
Q

What is a legal person?

A

-can be a human or a company

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5
Q

What is the legal attribute of separate personality?

A

-companies have separate legal rights from the people who created them

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6
Q

What is the purpose of companies?

A
  • making money, people pool money into one fund and make lots of money, you couldn’t do it on your own
    eg: building a railway
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7
Q

What are the two sides of companies that the government has to balance?

A

-protecting people who deal with companies vs making money

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8
Q

Why does making money side win sometimes?

A

-governments are scared the economy will be hurt if companies aren’t protected

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9
Q

Why are small companies sort of an aberration?

A
  • not the purpose of incorporation
  • but you can’t set a limit on how small or big a company has to be to be able to come into existence; thus you can even have a company that has one shareholder, one director and one dollar in shared capital
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10
Q

How many companies control most of the company money in Australia?

A

2000

-the ones listed on the Australian Securities Exchange (there are other stock exchanges eg. ASX, Chi-X etc.)

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11
Q

What are the majority of companies like? (size-wise)

A

-small businesses often run by one person

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12
Q

What is the major reason for forming a company?

A
  • it creates a legal barrier between the people creating the company and creditors
  • you don’t have to be liable for company’s debts
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13
Q

What is a member of a company?

A
  • A member of a company must be a person (e.g. John Citizen), a body corporate (e.g. XYZ Company Pty Ltd), or a body politic (e.g. State of Queensland). A member is an entity that can own property, sue or be sued.
  • commonly called shareholders
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14
Q

What is investing money in a company called?

A
  • subscribing for shares

- can do it by filling out a prospectus, or buying someone else’s shares via a stockbroker etc.

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15
Q

What do companies have to have (members)?

A

-have one or more members who have invested money by subscribing for shares or acquiring shares from an existing shareholder= called equity capital

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16
Q

What is equity capital?

A

-the capital generated by selling shares

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17
Q

What is debt capital?

A
  • all the rest of money a company has (except for the equity capital)
  • if company is winding up this is the money that has to be paid as opposed to equity that doesn’t
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18
Q

Who are the companies’ creditors?

A

-employees, suppliers, lenders = debt capital

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19
Q

Do you have a contract with the company if you are a shareholder?

A
  • yes, you don’t have to have direct contact with the company to be a shareholder.
  • the Corp Act 2001 says there is a contract between the shareholders and the company
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20
Q

Who runs the company, day to day?

A

-depends on the size of the company, if very small than the person who owns it= director, if larger you have more people so they elect a board of directors who make decisions, if even larger then the board of directors makes the bog picture decisions and delegates responsibilities to senior management

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21
Q

What are the two decision making organs in a company?

A
  1. board of directors and senior management

2. the company in general meeting (all shareholders gathering and voting together)

22
Q

Do directors have to be members of the company?

A

-no

23
Q

What issues have the members the right to vote on?

A

-on some issues but usually not in general management decisions

24
Q

What is the doctrine of separate legal entity?

A
  • companies in a business sense can do everything that a human can do.
  • that is why you want a company; when in debt they are the liquidated and what is left is distributed to the creditors but the people behind it are safe= so the company puts a barrier between the human and the creditors
25
Q

Who are natural legal persons?

A

-humans

26
Q

Who are artificial legal persons?

A

-companies (have extra rights= issuing shares but cannot marry and have a passport etc.)

27
Q

What are the consequences of companies being a separate legal personality?

A
  • companies can live forever= perpetual succession
  • can contract with controllers and others
  • separate taxpayer
  • members have limited liability
  • can incur obligations and hold rights and sue and be sued in its own name
28
Q

What are the facts of the Salomon v Salomon (1897)?

A

-Salomon is a successful shoe manufacturer, decides to incorporate, he transferres his shoe business and in return gets cash and 20 001 shares, 6 shares go to Salomon’s family. (you had to have 7 shareholders back then), he also gets debenture(security for a loan).
-then business gets into financial difficulty and Salomon is a secured creditor so the ISSUE:- was Mr Salomon entitled to priority under the debenture over unsecured creditors of the company
-depends on whether the company and its controller are separate legal entities
= court says YES so he is entitled

29
Q

What is the hierarchy of creditors?

A
  • secured
  • unsecured (employees)
  • then the shareholders
30
Q

What are the facts and issue of the Lee v Lee’s Air Farming Ltd case?

A
  • Mr Lee has a farming company and is it controller but also an employee. He has injury insurance policy for employees. He incurs and injury and wants the insurance to pay for health costs but they decline.
  • Issue: could Mr Lee be both the controller of a company and its employee?= YES so insurer has to pay!
  • same human being can have several roles in a company
31
Q

What are the facts and issue of the Macaura v Northern Assurance case?

A
  • Mr Macaura has a forest and transfers it to a company in which he is the sole shareholder, he doesn’t transfer the insurance policy to the company. Forest burns down and he wants the insurance to pay. They decline on the grounds that Mr Macaura isn’t the owner of the forest, the company is.
  • Issue: was Mr Macaura the owner of property that belonged to a company controlled by him?= NO so insurers don’t have to pay!
  • even if you own 100% of the shares of a company you do not own the assets of the company and can still be liable for theft.
32
Q

What are shares?

A
  • claims against a company to which particular right attach (enforceable by law)
  • valuable assets that can be sold by the shareholder
  • but shareholder’s don’t own the company’s assets
33
Q

In what do different classes of shares differ?

A

-shares can be created with different rights attaching eg.
=dividends “rights” (not really a right)
=voting rights
=rights and priorities in repayment of capital or surplus on winding up

34
Q

What are dividends “rights”?

A

-payment that you get as a result of owning share capital, you get money only if certain conditions are met and dependent on the financial situation of the company

35
Q

What do voting rights depend on?

A

-what type of shares you have, preference shares usually don’t carry voting rights

36
Q

Why must there be a balance between the debt capital and the equity capital?

A

-debt capital doesn’t involve control of the business but the share’s capital doesn’t have to be repaid (equity capital)

37
Q

Is there a fixed number of votes per share?

A

-no, determined by the company and each class of shares can have a different number of attached votes

38
Q

According to which section can the company decide the class rights of shares?

A
  • section 254B
39
Q

Who has the power to issue shares?

A

-directors (s198A)
-but the issue of shares may require shareholder approval if
=amendment to the constitution is required
=the issue varies existing class rights

40
Q

What does section 198A regulate?

A
  • who decides what shares to issue (directors)
  • crucial for the division of management in a company
  • the directors can do everything except for the few decisions given to the shareholders in general meeting (those that are spelled out in the constitution of the company)
41
Q

What are ordinary shares?

A

-if company has one class of shares= ordinary shares, can be further divided into classes A?C etc.

42
Q

What are preference shares?

A

-companies can issue these, they are different to ordinary shares and have special rules that avry and are decided by the company (s254A(2))
-usually they carry:
=fixed dividend(it is payable only if there is money to be paid out)
=priority for repayment of capital
=limited voting rights (or none at all)
=no right to share in surplus on winding up

43
Q

What does section 254A (2) stipulate?

A

-company decides the rights attached to preference shares

44
Q

What are partly paid shares?

A
  • if you pay 6 dollars for 10 dollar share then you are liable to the company for up to 10 dollars and if the company goes bust they can make a “call” and you have to pay it or forfeit the shares and the already invested money
  • company can issue these partly paid shares and the shareholders are obliged to contribute further if a call is made
  • CA s 254M
  • when you buy 10 dollar shares that cost 10 dollars= then you don’t have any more liabilty to the company= principle of limited liability
  • if the company goes bust you lose your 10 dollars but the creditors cannot come and request more money from you.
45
Q

What are you liable to with limited liability company and no liability company?

A
  • l imited liability company= you have to pay it, they can sue you and you have to pay
  • no liability company= you don’t have to pay anything more for partly paid shares and just leave.
46
Q

What does limited liability mean?

A
  • the company’s debts have to be paid by the company, not its shareholders
  • in a company limited by shares, a member’s liability to pay the debts of the company is limited to the amount (if any) unpaid on their shares (s 516)
  • if fully paid, no further contribution required
47
Q

What does s516 do?

A

–in a company limited by shares, a member’s liability to pay the debts of the company is limited to the amount (if any) unpaid on their shares

48
Q

What is company law?

A

-general term used to describe the legal rules governing:
=forming and termination of companies
=characteristics of companies
=relationships between participants in companies (such as members and officers)
=aspects of companies ‘dealings with outsiders

49
Q

What is the purpose of company law?

A
  • investor protection
  • commercial stability and consumer confidence
  • balancing competing interests
  • certainty= standard from rules
50
Q

Can breach of the Corporations Act be a criminal offence or subject to other State sanction?

A

-yes

51
Q

What are the sources of rules for company law?

A
  • Corporations Act 2001
  • Case law= precedents
  • other sources= corporations regulations, ASIC Act, ASIC exemptions, accounting standards, ASX Listing Rules (for listed companies)

Corporate Law (5 decks)

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