Liabilities and Rights of Directors in Company Formation

The assignment content discusses the rights and liabilities of a company, specifically Fly well Ltd., in terms of corporate governance, company formation, and shareholder rights. It highlights the importance of complying with Australian legislation, such as the Corporations Act, and notes that directors have significant responsibilities and liabilities. The study also examines various case examples to illustrate the application of these laws and their implications for a company's financial strategy.

Running Head: COMPANY LAW
COMPANY LAW

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Executive summary
The current report is about Australian Company Law. The statue of the company law is
regulated by the national authority namely Australian Securities and Investments Commission
(ASIC). The current study has provided advice to the Flywell Ltd to raise funds for business
expansion. This advice can support the organization to gain competitive advantage in
Australian market. With the help of this particular study, it can be identified that a company
has certain liabilities and rights in terms of specific business aspect. The study proves to be
elementary in terms of defining the upcoming financial strategy of Fly well Ltd. to remain
competent in the market.

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Table of Contents
Introduction................................................................................................................................4
Question 1..................................................................................................................................4
1. a) Fundraising obligation under Corporation Act..................................................................4
Question 2..................................................................................................................................8
a. Rights available to the investors of the company...............................................................8
b. Rights and liabilities of the company.................................................................................8
c. Rights and liabilities of the directors of the company........................................................9
Conclusion................................................................................................................................10
References................................................................................................................................12

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Introduction
Australian company law mainly follows the legal structure of UK company law. The statue of
the company law is regulated by the national authority namely Australian Securities and
Investments Commission (ASIC). The current study is going to provide advice to the Flywell
Ltd to raise funds for business expansion.
Question 1
1. a) Fundraising obligation under Corporation Act
Issue
Flywell is one of the most popular Australian domestic airlines. This is facing problems to
maintain business in Australian domestic market because of their rivals. This organization is
trying to expand their business operation in Australian domestic market. The organizational
directors are trying to regain their market position by purchasing new planes. However, it is
difficult for the organization to buy planes for the capital issue. This organization is trying to
induce investors to maintain business sustainability in the current market.
Legislation
From the given scenario, it has been the organization is facing problem to raise funds for
business expansion. Commonwealth parliament of Australia has included Corporation Act
under section 51 of the constitution. Corporation Act 2001, there is one subsection of
Australian Securities and Investment Commission (ASIC) which support the business
organization to raise funds related to business.
ASIC is general administration under Corporation Act 2001 which has included in the
chapter 6D. This provides the business process chance to raise fund through sales of

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securities. This section of the mentioned act has included several aspects of the fundraising to
maintain regulatory guidelines.
As per the rules of ASIC, private companies like Flywell can raise their funds from their
existing shareholders. The organization from airline industry can also borrow funds from
their subsidiary companies too. Apart from that, private business process can also borrow
funds from the general public. For this, private organization does not require to give
disclosure documents. Apart from that, ASIC has given updated guidance to maintain und
passport regime in the Australian country.
In time of fundraising, Flywell airlines can manage their investment schemes to gain
collective investments. Management investment scheme under ASIC has included below
mentioned guidelines:
Different types of people are brought together to provide money to interest from the scheme.
Interest rate under the scheme is considered as a financial product which is regulated under
the Corporation Act 2001.
Money is pooled from the investor to use in a common enterprise
Business entity has responsibility to operate entire scheme. On the other hand, investors of
the organization do not have authority to control over the operation of the organizational
scheme.
Managed investment schemes under ASIC includes a variety of investments (asic.gov.au,
2019). Those are:
● Property trust
● Cash management trust
● Australian equity trust
● International equity trust
● Mortgage schemes

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● Timeshare schemes
In regard to Flywell Airlines, the organization can imply Australian equity trust for inducing
investors to invest approximately $10,000 in exchange of the shares of the organization. In
addition to that, managed investment scheme of ASIC also support the mentioned airlines to
$9 million to $11 million funds to expand the business process (Eastwell, Dale & Dunstone,
2017).
Flywell airlines require providing different types of documentation in order to raise funds for
business expansion. The documentation includes prospectuses, profile statement, corporate
bond prospectus or offer information statement. In order to raise funds of approximately
$11million, the organization requires providing key information of the organization to the
shareholders to approve the funds.
Application
In case of ASIC v A.B.C. Fund Managers Ltd (No 2), actions of defendants has included
transaction investment and lending to complete judgment process within a day (jade.io,
2019). Organisational transaction follows modus of operandi in end of June to borrow money
from investors. Investors have followed rules of managed investment process to provide
money to the organization. However, it has been identified that the organization has
association with Stephen Lynne Wharton. Transaction are been completed by the accountants.
On the other hand, the mentioned organization has paid borrowed money within 1995 to
1998. The actual cash are subscribed by the investors and largely funded by the taxation
refunds. Law of ASIC has supported the organization to culminate entire transaction process.
In the case of Matthews v ASIC [2009], it has been identified ASIC has sought orders against
the appellants. Stephen Lewis Mathews has been found guilty of contempt of court (jade.io,
2019). This application is amended by the charge statement. It has been found that ASIC has
charged Mathews for breaching of the orders. In time of declaration, the court has alleged

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that appellant has breached Corporation Law under section781. The appellant has carried
investment advice by publishing advice reports and securities reports under different types of
circumstances. It has been also identified that the appellant has failed to deal with securities
under corporation law.
These two case studies can help Flywell Ltd to deal with legal issues related to fundraising
activities.
Conclusion
On basis of the above discussion, it can be said that Flywell Ltd can imply rules of ASIC to
raise funds to expand the business process in a significant manner. Apart from that,
consideration of ASIC guidelines can support Flywell to raise funds of $9 to $11 million.
Gaining investment on exchange of share is only option for the organization to gain
competitive advantage in current Australian market.
Fundraising obligations of Flywell ltd
Fundraising obligation under the Corporation Act has included different types of disclosure
requirements to gain investment (tglaw.com.au, 2019). Flywell Ltd requires fulfilling
disclosure and fundraising needs which regulate share offers in Australia. However, the
mentioned organization cannot distribute application for the investor by offering securities.
Section 708 of Corporation Act has included that the chosen organization does not need to
provide offer to sophisticated investors (legislation.gov.au, 2019). Apart from that, mentioned
organization in the provided case study requires to maintain disclosure requirements to
prohibit certain type conducts in time of completing fund raising activities. On the other
hand, Flywell also requires prohibiting deceptive statements in respect to the disclosure. The
chosen organization also requires maintaining specific transaction prospectus to maintain
share exchange.

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Question 2
a. Rights available to the investors of the company
Investors are the key in terms of improvement of a company. The financial aspects of
company are determined by its investors and the shareholder. The corporation Act defines a
range of aspects regarding the legislations related to the investment or the financial aspects.
The act shows that an investment in a registered scheme can enjoy benefits such as an interest
in the scheme, a legal or equitable interest, an option to acquire an investment, an option to
dispose of the investment (Omar, 2018). Investment contract is an arrangement or scheme
that is substantial in nature and irrespective of the form. The rights available to the investors
of a company are Annual general meeting where determination of new leaders and director of
the company is elected, their remuneration and other business related issues are discussed
Report and announcements are also included within the range of this issue (Parker, 2015)
Another right of the shareholder is associated with Dividends and dividend reinvestment plan
in which the company must have pay dividends twice a year Calculation of the cost vase is
every crucial in this aspect. The rights of the shareholders include rights to attend shareholder
meetings and vote for certain issues, Right to sell the shares and the right to participate in a
list of corporate actions that is offered by Flywell Ltd. It is also associated with a range of
issues such as less control, difficulty in terms of accessing new information and difficulty in
terms of financial aspect which can be removed with the help of the number of factors
associated in this context (Moses, 2015).These rights are quite relevant in terms Flywell Ltd.
b. Rights and liabilities of the company
A company is a type of business structure or a separate legal entity that is associated with its
attributes. The key aspects of a company include limited liability compared to other
structures. It is quite evident that it is a more complex business structure to initiate.
Involvements of higher running cost and setup it there. The type of liabilities of a company is

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unlimited with share capital, limited by shares, limited by guarantee or no liability. Share
capital, corporate governance and company formation, the legislation in Australia are quite
strong in this scenario. It can be identified that the corporate governance standard sears not a
matter to comply with and explain for and taken into account by the courts of Australia
(Johnston & Morrow, 2018). It can be identified that the company constitution and
officeholders have significant role in terms of defining the rights and the liabilities of the
company. In the case of H. R. SINCLAIR &SON PTY. LTD. v. FEDERAL
COMMISSIONER OF TAXATION (1966) 114 CLR 537 similar instances was happened.
The jurisdiction has amended a range of liabilities and duties of a company in similar context.
c. Rights and liabilities of the directors of the company
Directors are the most important entity within a particular company (Hannigan, 2018). It is
quite evident that a director must have to comply with a range of responsibilities and actions.
The liabilities of a director are immense in nature. The directors are liable in terms of
improvement of a certain business. However, the liabilities can be identified in a detailed
manner, the primary liabilities of a director includes,
● Debts incurred by the company at the time they fail to pay debts
● To compensate the losses associated with the company that is referred to the breaches
of the duties of specific directors.
● For penalties in relation to criminal and civil aspects.
The rights of a director range in a number of aspects. This include the right to inspect the
financial records and the documents, the right to delegate, the right to procure against the
breach of the liabilities in relation to certain circumstances. The corporations act includes that
a director can inspect take copies of the accounts and the documents as well as the books of
the company for a particular purpose (Barker, 2016). It also suggests the directors of a

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company can delegate their power in accordance to anyone of their choice. The directors of
the chosen company must rely on the expert advices and the information provided to him.
Some other rights include,
● Active participation in the decision of the boards
● Engagement in terms of remuneration
● Enforcing the statutory provisions
● Indemnity
With the help of analyzing the duties and liabilities of the company, the shareholders and the
directors of the company it can be identified that Fly well Ltd. have to comply with a number
of aspects in terms of remaining competent with a steady rival that wants to expand its
business. The Specific roles of higher entities within the organization can help in procuring
the desired outcome. In order to clarify the aspects a range of case examples can be taken into
account. In the case Cooper Holdings Pvt. Ltd v Bell & Amor [1999] the jurisdiction have
identified the liabilities and the role so the directors within the organization. The case has
been referenced in number of similar cases later. The director’s liability legislation
amendment act 2013 also amended a range of aspects related to the liabilities of the business
as well as the directors and the entities within the organization.
Conclusion
With the help of this particular study, it can be identified that a company has certain liabilities
and rights in terms of specific business aspect. It is quite evident that there are certain
fundraising obligations associated with the company are terms of raising capital for
investment. However, legal support can prove to be helpful in terms of mitigating the

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obligations. This study incorporates advice related to the fundraising obligations. The study
has also enlightened the rights available with the investors, the company and the directors.
This can help in analyzing all the aspects related to the fundraising options and legislations
available regarding this particular aspect. The study proves to be elementary in terms of
defining the upcoming financial strategy of Fly well Ltd. to remain competent in the market.

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References
Asic.gov.au (2019), Rules of ASIC, Retrieved on: 17th May, 2019
from:https://asic.gov.au/regulatory-resources/fundraising/what-disclosure-documents-
do-you-need-to-give-potential-investors-when-raising-funds/
Barker, R. (2016). The Duties and Liabilities of Directors—Getting the Balance Right. The
Handbook of Board Governance: A Comprehensive Guide for Public, Private, and
Not-for-Profit Board Members, 249. Retrieved from:
https://books.google.co.in/books?
hl=en&lr=&id=STYuDAAAQBAJ&oi=fnd&pg=PA249&dq=directors+rights+and+li
abilities&ots=lJE_JtF8HE&sig=UoNDPeIgnZyLpMlEdd4YbRyVyek
Eastwell, M., Dale, J., & Dunstone, F. (2017). Crowd-sourced equity funding is coming to
Australia. Governance Directions, 69(7), 411. Retrieved on: 17th May, 2019
from:https://search.informit.com.au/documentSummary;dn=993228976678286;res=I
ELBus
Hannigan, B. (2018). Company law. Oxford University Press, USA. Retrieved from:
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jade.io (2019), Matthews v ASIC [2009], Retrieved on: 17th May, 2019
from:https://jade.io/article/95355?at.hl=bjs95355
jade.io (2019, ASIC v A.B.C. Fund Managers Ltd (No 2), Retrieved on: 17th May, 2019 from:
https://jade.io/article/74197?at.hl=bjs74197
Johnston, A., & Morrow, P. (2018). The Revised Shareholder Rights Directive 2017: Policy
Implications for Workers. Retrieved from:

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https://www.etui.org/content/download/34133/326524/file/Shareholder+Rights+Johns
ton+Morrow+Policy+Brief+2018-02.pdf
legislation.gov.au (2019), Corporation Act 2001, Retrieved on: 17th May, 2019
from:https://www.legislation.gov.au/Details/C2018C00031
Moses, R. (2015). (15-080) Newcastle Port Corporation trading as Port Authority of New
South Wales v Dudgeon; Newcastle Port Corporation trading as Port Authority of
New South Wales v Svitzer Australia Pty Limited [2015] NSWLEC 139.
Environmental Law Reporter, 34(15-075/15-082), 9. Retrieved from:
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Omar, P. J. (Ed.). (2018). Directors' duties and liabilities. Routledge. Retrieved from:
http://publishedstories.info/directors-duties-and-liabilities-find-book-groups-paul-j-
omar.pdf
Parker, D. (2015). The Company in the 21 st Century: Piercing the veil: reconceptualising the
company under law. Journal of Business Systems, Governance & Ethics, 10(2).
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