Corporation Law: Agency and Corporate Veil

This assignment explores the significance of agency and corporation law in the business environment. It examines two scenarios: one involving an agent's actions and the other focusing on the corporate veil and director disqualification. The first scenario analyzes the responsibilities of both the principal and the agent, while the second scenario delves into the legal implications of corporate liability and the limitations on director actions. The assignment provides a comprehensive understanding of these legal concepts and their practical applications in business.

Corporation Law
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Table of Contents
Introduction......................................................................................................................................3
Question 1........................................................................................................................................4
Issues............................................................................................................................................4
Law...............................................................................................................................................4
Analysis........................................................................................................................................6
Conclusion...................................................................................................................................6
Question 2........................................................................................................................................7
Issue.............................................................................................................................................7
Law...............................................................................................................................................7
Analysis........................................................................................................................................9
Conclusion...................................................................................................................................9
Conclusion.....................................................................................................................................11
Reference:......................................................................................................................................12
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Introduction
For regulating the operations of the organisation, it is essential that all the necessary applicable
laws are complied with in fair and true manner. This assignment defines the significance of the
laws in the business environment. It is divided into two parts in which first part contains the issue
related to the agency law and second part consists of the implementation of corporation law
including the laws about the incorporation of a corporation, the laws on the qualification of a
professional to be appointed as a director. The first part also explains the responsibilities of the
both, the principal towards the agent and the parties with whom his agent is dealing and the
obligations of the agents towards his principal.
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Question 1
Issues
 The first issue is related to the agent of Terence i.e. Sara, who is the designer for the
company, Terry’s Terrific Designs. As per the situation, Sara didn’t inform Gabby that
she’s working with the organisation and receives the order for $1,000 Brooch. It was
found when Terrence called Gabby about confirming the order and Gabby didn’t know
who he was.
 Second agent of the Terrence i.e. Peter, who is working as the supplies purchaser of the
company. He was instructed by his principal that due to over-supply of gold, it must not
be purchased. It was also informed to him that only silver must be purchased. However,
even after this, Peter purchased the gold worth $1,500 weighing, 50gm.
 Peter was fired for disobeying a direct order on Monday. However, business email of
Peter was not shut off till Thursday. In this time, he orders diamonds worth $5,000 which
was delivered to him on Tuesday. These diamonds were purchased from Gordon and he
is demanding payment for the diamond and Peter is nowhere found.
Law
This case is related to the law of agency law. In today’s time, agency plays a significant role in
the business environment of Australia. This can be understood with the help of the definition of
the agency. Agency is an association which is formed or established with the help of an
agreement between two or more parties i.e. the principal and the agents for handling and
managing the work on his behalf i.e. on principal’s behalf. There are different types of an agency
such as agency without any consideration to the employees or without any agreement.
There are three parties involved in this such as:
 The Principal
 The third party and
 The Agent
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It is noted that there is no obligation of the agent towards the third party; his obligation is only
towards the principal.
Types of Authority:
There are various types of authorities in the agency which are as follows:
 Actual Authority
 Ostensible Authority
 Authority of necessity
Actual Authority: This is the authority which is stated, discussed and decided between the
principal and the agents. This includes express and implied authority. Authority which is obvious
or is to be supposed by the agents and such authority is not stated by the agent is called Implied
Authority. It is such authority which is not required to be expressed and falls into the position on
which such agent is appointed (Harris, 2018).
It is noted that if there is a private agreement between the agents and the principal, then there can
be a limitation to the authority available to the agents. However, such limitation will only be
considered valid when such limitation is informed to the third party. Otherwise, the authorities
will be taken within the normal scope.
Ostensible Authority: In this authority, it is represented by the principal that the agents have the
authority of working on behalf of the principal. However, in reality, such agent doesn’t have the
authority. In this, the agent depicts that he has the authority and no estoppels are made by the
principal to give the third party a correct impression.
It is noted that if the third party had the information that no authority is provided to the agent by
the principal, it will give rise to the issue of evidence.
Authority of Necessity: This includes the authorities which are exercised by one party in the
time of necessity. In this, one person controls the property of another person and such person
makes expenses in relation to preserving the property. There is no stated authority given in this.
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There is a significant term “Undisclosed Principals” which means even if the agent doesn’t
disclose his principal, third party and the principal is considered to be entered into an agreement.
In this, third party has the authority to exercise the performance of contract either by the
principal or the agent (Greenawalt, 2010).
Analysis
In the first issue mentioned above, Sara didn’t inform Gabby about her principal, Terrence. As
per the law of agency, it is mentioned that under the undisclosed principal, third party is under an
obligation to perform to the principal. However, third party has the option that from whom such
contract must be performed. This was also stated in the case of Siu Yin Kwan v Eastern
Insurance Co. Ltd. [1994] (Twomey, 2013).
Under the second case, it is mentioned that Peter, as a supplies purchaser purchases the gold
weighing 50gm and amounting $ 1,500 which is a good deal. It will be considered as an implied
term of the position of the agent. The case of Watteau v Fenwick [1893], it is stated that the duty
purchasing cigar is the duty of the pub manager. It is necessary that any limitation on the
authority of the agent must be communicated with third party (Ellinghaus, 2007).
Under third party, diamonds were purchased and delivered to Peter on behalf of business
amounting $5,000 after he was removed from the job as his business email was working till
Thursday. As the agent work on behalf of the principal, Terrence is liable to make payment to
Gordon for the Diamond as this was done due to the negligence of the principal as the email of
Peter was not shut down after his removal.
Conclusion
It is concluded from the law mentioned above that it is the obligation of the agent to work as per
the authority provided to him by the principal. There can be certain limitations on the authorities
of the principal; however, it will be valid only when the same is communicated with third party.
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Question 2
Issue
The main issues involved in the given case are Roger Smith was personally sued by the
Industrial Machine Ltd as the company, United Chemical Pty Ltd was unable to make payment
of the instalment in the year 2017 for the phosphate processing machine amounting $200,000.
Another issue, in this case, is that Roger was refused by the Commonwealth Legislation for
incorporating a company doing the business of explosive manufacturing as Roger was criminally
convicted in the year 2005.
Law
It is essential that a company is required to be established in accordance with the Corporation
Act, 2001. As per section 119 of the act, after the company is registered as a body corporate, it
is considered as incorporated and becomes a legal person. This provides rights to the corporate
body which are as follows:
 Such corporate body is separate from its members.
 Continuous Existence i.e. such body continues to operate or do business until it is
unregistered.
 Company’s Capacity to own a property i.e. whenever a property is purchased on behalf of
the company, it will be in the name of company and no other member will have any
interest in the property.
 Company have the authority to sue in its own name and also to be sued. Moreover, no
member can sue on behalf of the company, however, the member has the right to sue the
company (Latimer, 2011).
It is also stated on section 124(1)(a) of the act that an organisation have the legalised capacity
and rights which are available with an individual as well as the rights available with a corporate
body.
It is provided under the provisions of this act that:
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 An organisation is a legal entity which is separate from its members. The liabilities of the
company will be managed and dealt with by the company only, however, all the
authorities of the company are exercised by the Board of Directors.
 Shareholders of the company will not be considered as the Principal of the company.
These are individuals who own some part of the company and all the work of the
company is done by Board of Directors.
Corporate Veil
It is the separation or a curtain between corporate body and its member which provides
protection to such members for being personally liable for the debts of the company and other
related obligations. Such veil is impenetrable. The concept of the corporate veil or the separate
legal entity was established in the case of Salomon v Salomon & Co Ltd [1897] AC 22. It was
stated in this case that the members of the company are different from the legal existence of the
company. Only the company will be sued in case of default in performing its duties, not the
members (McLaughlin & McLaughlin, 2013).
The lifting of the Corporate Veil
There are certain situations or circumstances in which such veil or curtain between the company
and its members is pierced or lifted which are as follows:
Breach of Duty: Such veil will be lifted in case there is a violation of the duties of the human
controller i.e. the director of the company and such officer in default will be held liable for the
default. It was held in the case of Gilford Motor Co Ltd v Horne [1933] Ch 935.
Fraud: If the company have done any fraud or the purpose of the company is to deceive the
investors or the creditors, etc. then such veil will be lifted. Same was held in the case of Jones
Re Darby; Ex parte Brougham [1911] 1 KB 95.
There are various situations in which corporate veil are lifted and the officers are held liable for
such default. If the there is a case of deceiving intentions or the fraudulent intentions, etc. only
then such veil will be lifted (Vandekerckhove, 2007).
Disqualification of the Director
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Section 206 deals with the disqualifications due to which an individual will not be allowed to
manage or control a body corporate. There are certain provisions related to the disqualification
such as:
 If the individual has made or is part of the decision which has a significant impact on the
operations of the business.
 Is disqualified under the Bankruptcy Act.
 Exercising the authority or powers available to directors which have an impact on the
financial position of the company.
 Disqualified by the ASIC.
 Disqualified by any legislation.
Analysis
In the given situation, Roger was sued by the Industrial Machines Ltd. as the instalment for the
machine for processing phosphate was not made by the company, United Chemical Pty Ltd
amounting $200,000. As per the provisions of the act mentioned above, it is stated that the
members or the officers of the company are different from the company. It can only be done in
case of fraud however, there was no intention to deceives the Industrial Machines. A case can be
filed against the company, United Chemicals Pty Ltd, not against its members (Holland, 2017)
In the given situation, Roger establishes a company i.e. Explosive Industries Pty Ltd. However, it
was refused by the Commonwealth Legislation to allow the licence of explosives manufacturing
due to the conviction of Roger. It is mentioned in the provisions of this act that an individual will
be automatically disqualified from managing a company if such individual was convicted before.
Conclusion
From the provisions of the Corporation Act, it is concluded that an organisation is a formed as a
separate legal entity which is separate from its members. However, such corporate body is
operated by the Board of Directors. There are various disqualifications provided under the act in
accordance to which director is able to manage the company and exercise its power.
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Conclusion
It is concluded from the above decision that there are various laws which are applicable on the
organisation and such organisation is liable to comply with such laws. In the first part of the
assignment, the agency law is applicable which provides certain powers to the agents such
dealing on behalf of the principal, etc. However, limitations can be made on such powers and
same must be informed to the third party. In the second part of the assignment, corporation act is
applicable which provides the laws in relation with incorporation of a company as a separate
legal entity and the disqualification of the directors due to which they are unable to manage or
control the company.
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Reference:
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Quarterly, 62(2), 317-343. Available at: https://primo.csu.edu.au/discovery/fulldisplay?
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