Corporate Law

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This article discusses the incorporation and registration of a company, legal capacity of a company, and the concept of separate legal entities of companies. It also explains the personal liability of directors of a company for debts incurred by a company in the event of becoming insolvent. The article provides case studies and relevant sections of the Corporations Act 2001 to support the discussion.
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Running Head: CORPORATE LAW
Corporate law
Name of the Student:
Name of the University:
Author Note
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1CORPORATE LAW
Table of Contents
Answer 1..........................................................................................................................................2
Issue.............................................................................................................................................2
Rule:.............................................................................................................................................2
Application..................................................................................................................................4
Conclusion...................................................................................................................................5
Answer 2..........................................................................................................................................6
Issue.............................................................................................................................................6
Rule..............................................................................................................................................6
Application..................................................................................................................................8
Conclusion...................................................................................................................................9
Reference List:...............................................................................................................................10
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2CORPORATE LAW
Answer 1
Issue
The issues in this chosen case study are:
What are the steps required to be taken for the incorporation and registration of a
company?
Can Richard and his sons successfully expand their business by changing the company
structure and expanding it new markets?
Rule:
It is to be stated that the Corporations Act 2001 governs the rights of individuals in
relation to conducting and operating a business for the purpose of gaining profits. It can be stated
that an organization can be incorporated as public or a private company (Legislation.gov.au
2018). Part 2A of the Corporations Act 2001 deals with the provisions of registering a company.
It can be said according to section 114 of the aforementioned act that private companies are
required to have a minimum of 50 members. It is to be mentioned that private companies cannot
raise capital by issuing shares to the public. However, in case of public companies there is no
limitation on the number of members. Public companies can raise their capital by issuing shares
to the public (Tricker and Tricker 2015). It can be stated that registration of public companies
requires more documentation.
According to section 112 of the Corporations Act 2001 it can be stated that companies
can e broadly classified into two categories:
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3CORPORATE LAW
Proprietary company
Public company
It is to be stated that proprietary companies can be further subdivided into companies limited
by shares and companies with unlimited share capital (Tricker and Tricker 2015). Public
companies can be further subdivided into companies limited by shares, companies limited by
guarantee, companies with unlimited share capital and no liability company.
It is to be mentioned that part 2A.2 of the aforementioned act deals with how a company in
Australia can be registered. It is to be stated according to section 117 of the aforementioned act
that the first step of registering a company requires filing of an application to the Australian
Securities and Investment Commission (Hudson 2017). However, only the type of companies as
mentioned in the section 112 of the act can be registered. According to subsection 117(2) an
application for the registration of a company must contain the following information:
The type of company proposed to be formed and registered under this act
The proposed name of the company
Name and address of each of the members of the company
The present family name of each of the persons who consents in writing to become
directors of the company
The present family name of the each of the persons who consents to be the be the
company secretary
Address of the directors and company secretary
The address of the registered office and the principal place of business of the company
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4CORPORATE LAW
For a company limited by shares or an unlimited company the number and class of shares
each member agrees to take up in writing, the amount that each member of the company
is willing to pay for issuance of each share need to be disclosed in the application
Prescribed particulars about the issuance of shares needs to be present in the application
for the registration of public company limited by shares or an Unlimited company
For a company limited by guarantee the proposed amount of guarantee of each member
as agreed upon by the members in writing must be present in the application.
Section 118 of the act gives the right to the ASIC to give a company ACN and issues
certificates for the purpose of registering it upon receiving the application for registration.
Section 119 of the Act states that a company comes into existence the day it is registered.
According to section 120 it can be stated that a person becomes a secretary of the company or its
director upon its registration and if such person’s name and details were proposed as a director or
a company secretary in the application (Legislation.gov.au, 2018).
Application
In this given case study, Richard has an extensive olive grove in the Hunter Valley region
with over 12000 olive trees. His two sons are proposing to expand the business of their father
and for that purpose they are proposing to operate as a company instead of a sole proprietorship.
The primary reason for wanting to operate the business as a company is to receive tax benefits.
Therefore for the purpose of registering the company they need to follow the procedures as
mentioned above. It can be said that firstly they need to decide the type of company intended to
be formed by them. After analyzing the details of the case study presented to us, it can be said
that forming a proprietary company would be beneficial to the family. As defined by section 45a
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5CORPORATE LAW
of the Corporations Act 2001 a proprietary company is privately owned company which has a
maximum of 50 shareholders. However, it is to be mentioned that proprietary companies cannot
issue shares to the public for the purpose of raising capital.
For registration of the company an application has to be made to the Australian
Securities and Investment Commission in compliance with the provisions stated in section 117 of
the Corporations Act. In the application all the relevant details of the company proposed to be
formed by the family has to be present. Firstly it has to be mentioned that choosing the name of
the company is of utmost importance. The name of the company has to be unique and no other
company can be in existence with the same name. In case of formation of a proprietary company
limited by shares, the name of the company must end with Pty Ltd. Section 118 of the
aforementioned act gives power to the ASIC to issue ACN registration for the running the
business. According to section 119 the company proposed to be formed by Richard and his sons
will come into existence the day it is registered. According to section 120, the persons
automatically start acting as directors or company secretary upon registration of the company,
provided their names were proposed in the application.
Conclusion
Thus in conclusion it can be stated that the business of Richard can be given the structure
of a Proprietary company limited by registering it with the ASIC. The steps required to be
followed to register a company are enumerated in the Corporations Act 2001.
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6CORPORATE LAW
Answer 2
Issue
The issue which has been identified in the given case study is whether Terry can take any
legal action Cosmo Mining Services Pty Ltd or Mine Ltd or Lazarus Pty Ltd?
Rule
It is to be mentioned that section 124 of the Corporations Act 2001 governs the powers
and legal capacity of a company. According to this section it can be stated that a company has
the powers and legal capacity of an individual both outside and in its jurisdictions. Therefore, it
can be stated that a company has all the powers of a body corporate. However, such powers and
authority are separate from the owners of the company. It can be stated that such company can
issue and cancel shares in its own name and has complete authority to do so. Every company has
a separate legal entity from its owner and can distribute any of the property belonging to the
company among the members of the company and can provide security for the capital that is
uncalled for.
In the remarkable case Salomon V A Salomon And Co Ltd [1897] the concept of
separate legal entities of companies has been discussed. It is to be stated that in this case the
House of Lords held unanimously that as the company in the question was duly incorporated, it
must be treated as a separate legal entity must held responsible solely for the liabilities incurred
by it. It was also held that the motive of those who were behind the promotion of the company
was irrelevant in discussing the rights and liabilities of the company. Further it can be stated that
the concept of corporate veil existing between the members of the company and the company
itself was firmly established in this case. Thus according to the finding of the case it can be
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7CORPORATE LAW
stated that due to the separate legal entity of the company the liability of the company will not be
directly related to the shareholders of the company.
The case Lee v Lee’s Air Farming Ltd (1961) is another landmark case dealing with
the principle of corporate veil. In this case it was held by the house of the lords that a company
has the right to enter in employment contracts under certain circumstances. However, it can be
stated that a company faces all the legal obligations due to its separate legal entity. It was held by
the Judicial Committee of the Privy Council that a company will be treated as a separate legal
entity and it is possible for a director to have a contract of employment with the company which
is owned by him.
The case Andar Transport Pty Ltd v Brambles Ltd (2004) is another landmark case
dealing with the provision of separate legal of a company. The court highlighted the legal
principles in Corporate Law dealing the employee’s duty of care. It was held by the court that an
employer has the duty and must provide his employees with proper and safe working conditions.
In this case the High Court has determined that duty if care owed by employer to the employee
cannot be co-terminous and co-extensive. It was stated by the court that it is possible to
differentiate between the duties owed by an employer to an employee as governed by the
common law and those duties which are within the personal capacity of the employers.
The case Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) is a landmark
case dealing with the provisions of corporate veil. In this case it was held by the court that in
certain circumstances the corporate veil of a company needs to be pierced to find out who
actually holds the duty to the aggrieved party. However lifting of the corporate veil is only
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8CORPORATE LAW
permissible in instances where the facts are inconsistent, unpredictable not defined properly
(Waqas and Rehman 2016)
Application
As per the facts of the case it can be said that Cosmo Mining Ltd in a subsidiary company
of Cosmo Mining Services Pty Ltd. Recently Cosmo Mining Ltd has been in the media for
contamination of a river nearby due to its mining activities. The river provides water to the
residents of Gunbarrel. A few of the residents of the Gunbarrel and an employee of Cosmo
Mining Ltd., Terry have contracted cancer because of drinking the contaminated water. When
faced with this issue the shareholders of the company Cosmo Mining Ltd. unanimously voted for
selling the business of the company to another company, Lazarus Pty. Ltd.
According to section 124 of the Corporations Act 2001 it can be said that the company
Cosmo Mining Ltd has a separate legal entity from its and therefore it enjoys certain rights and
will face certain liabilities (Hudson 2017). Therefore in light of the aforementioned statement it
can be said that the company can be held liable for the debts incurred and for all the liabilities.
However, in a situation where the company becomes insolvent it will become necessary for the
courts to lift the corporate veil of such company. Further section 588G of the Corporations Act
2001 has discussed and defined the personal liability of directors of company for debts incurred
by a company in the event of becoming insolvent. Thus it can be said that the Company Cosmo
Mining Limited can be held liable for contaminating the river and Terry can take action against
such company.
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9CORPORATE LAW
Conclusion
Thus after analyzing the facts of the case and applying legal principles to the facts it can
be stated that Cosmo Mining Limited is responsible for contaminating the river and Terry has the
right to take legal action against the same company.
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10CORPORATE LAW
Reference List:
Andar Transport Pty Ltd v Brambles Ltd (2004) 206 ALR 387; (2004) HCA 28
Briggs v James Hardie & Co Pty Ltd & Co Pty Ltd (1989) 16 NSWLR 549
Lee v Lee’s Air Farming Ltd (1961) AC12
Salomon V A Salomon And Co Ltd [1897] AC 22
Legislation.gov.au. (2018). Corporations Act 2001. [online] Available at:
https://www.legislation.gov.au/Details/C2018C00031 [Accessed 4 Feb. 2018].
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles, policies, and practices.
Oxford University Press, USA.
Waqas, M. and Rehman, Z., 2016. Separate Legal Entity of Corporation: The Corporate Veil.
International Journal of Social Sciences and Management, 3(1), pp.1-4.
Whincop, M.J., 2017. Corporate governance in government corporations. Routledge.
Hudson, A., 2017. Understanding Company Law. Taylor & Francis.
Asic.gov.au. (2018). ASIC Home | ASIC - Australian Securities and Investments Commission.
[online] Available at: http://asic.gov.au/ [Accessed 4 Feb. 2018].
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