Week 8 - Corporations law Flashcards
what is a corporation
A corporation is a separate legal identity from the persons who run and own it. In Australia they are regulated by the Corporations Act 2001 (Cth) (section references throughout this chapter refer to this Act unless otherwise indicated).
explain registration of companies
Section 117(1) of the Act requires lodgement of an application with ASIC to register a company. A company comes into existence at the beginning of the day upon which it is registered (s 119). The unique company number allotted to the company upon registration is its ACN (Australian Company Number) (s 118(1)).
What are replaceable rules
Basic rule relating to the internal management of a company - they are replaceable in the extent that they can be replaced or modified by company’s constitution
explain liability of a company for the acts of it’s agents
A company being an artificial body in law must act through its agents, ie directors, officers and other agents.
How do we determine if actions of an agent do bind a company? Subject to exceptions, these persons have power to bind a company.
Persons dealing with a company are entitled to make certain assumptions about a company unless the person knows or suspects that such an assumption is incorrect.
Assumptions that may be made include:
That the company has complied with its constitution or the replaceable rules and that an officer has been properly appointed (ss 128 and 129).
Section 128(3) provides that these assumptions may be made even if an officer or agent has acted fraudulently or even forged a document related to a dealing.
See Brick & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279, where a person acting as company secretary executed a deed on behalf of his company, the company was held to be bound, even though later it was determined he had not been properly appointed.
Explain duties of corporations
In Daniels v Anderson (1995) 37 NSWLR 438, the Court of Appeal found that the following requirements form the duty of care and skill of directors:
be familiar with fundamentals of the company’s business;
keep informed about its activities on a continuing basis;
monitor corporate affairs and policies; and
keep informed about its financial status by regularly reviewing its financial
statements (for facts see [11.240]). The director has a duty to:
act honestly (s 184(1));
not recklessly (s 184(2)); and
should not misuse company information (s 184(3)
The director has a duty to exercise due care and diligence (s 180(1)) but are protected from decisions which may not eventuate well for the company by the Business Judgement rule (s 180(2)). The tests for this subsection must be met for protection: see [11.260].
Explain directors duty to prevent insolvent trading
ection 588G of the Act requires that directors do not allow a company to incur debts while insolvent.
Section 588H provides certain defences for directors in proceedings for contravention.
Breach of s 588G carries both civil and criminal penalties and s 588M allows a liquidator to recover loss or damage as a debt due to the company where the director may or may not (conviction is not necessary for this) have allowed the company to trade while insolvent.
People that cannot manage corporations (182)
those convicted of indictable offend that concerns the making of decisions affecting business of the operation
convicted under cooperations act 2001 over a punishable offence more than 12 months prison
Convicted of an offence involving dishonesty
12 month jail in another country
they are an undischarged bankrupt
- What are the main features of a company?
The main features of a company are discussed at 11.70. Students are expected to focus on the twin concepts (a) the separate legal personality and (b) limited liability.
. In a limited liability corporation whose liability is “limited”? And to what
extent?
The liability of the shareholders – not the company - is limited and is limited to the extent of any unpaid value of the shares they have purchased.
What are the principal differences between a proprietary and a public
corporation?
The differences between proprietary and public companies are discussed at 11.80 - 11.130. (P 183)
Over 30 years, George has grown his small business to a large family business. He decides then to register his business as a company. In addition to George, two children are the directors, and all family members are shareholders. The business suffers during the global financial crisis and the company is eventually liquidated. The company assets are not sufficient to discharge all creditors in full. The unsecured creditors argue that George and his company are in essence the same person so George should be liable for the debts of the company. Explain the principle in Salomon v Salomon & Co Ltd and explain whether the creditors are correct or not
See the case at 11.40.
