Corporations Laws - Assignment

Running head: ASSESSMENT 2 1
Assessment 2
Wentworth Institute
SPA233 Corporations Law
Date

ASSESSMENT 2 2
Assessment 2
Topic 1
Response to Topic 1
There are two fundamental legal concepts that govern registration and incorporation of
companies. First is the concept of legal personality and last is the concept of limited liability.
Under corporate personality, a company has a distinct and separate identity from its members or
owner in case of proprietary company (Sealy & Worthington, 2013). By registering a proprietary
company, an individual manages to separate personal liability from company’s liability. Under
the law, a proprietary company has a distinct legal personality separate from its owner
(Anderson, 2009). A business in the form of a proprietary company is more desirable because it
limits the liability of the parties. Structuring the commercial enterprise in the form of a propriety
company will give the venture a distinct legal personality. In this light, the distinct legal
personality protects the shareholder from any liability borne by the company.
It is easy to register a proprietary company. First, one need not use a constitution. The
constitution of a corporation governs the formation and operations of a company. Before 1998,
the corporations Act required companies to use constitutional documents during registrations.
Currently, the constitution includes both a memorandum of association and articles of
association. Thus, the constitution is a document that communicates the legal intent of parties to
incorporate a company and own shareholders’ rights after financing the share capital (Lowry &
Dignam, 2008). The same outlines the management and ownership structure of a company. In
addition, the constitution provides for the rights and duties of the management, rights, and
responsibilities of the shareholders, liability, administration of shares, and dividend policy
among others.

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Another issue to consider is taxation with respect to profits accruing from the operations
of the trade. The dividends of shareholders are not subject to taxes while profits from personal
business are subject to taxes. Channeling the profits of the company to expanding the business
will lower the share capital thus substantial lower taxes.
In registering a proprietary company, one of the most important steps is filling in form
201. Form 201 is a statutory standard form for the incorporation of a company. On returning the
filled form 201, schedule 2 of the Corporation Regulations requires one to pay the registration
fees. The fees depend on the share capital involved. In this case, the payable amount is 426
dollars.
Topic 2- Types of Companies
Differences between a proprietary company and a public company
Under Australia’s Corporations Act, there exists two main types of companies. Thus, one
can either incorporate a proprietary company or a public company (Corporations Act 2001).
Under section 45A (1), the Corporations Act provides for proprietary companies. The basic
difference between a proprietary company and a public company lies in the structure of
governance and raising of capital.
Given that a proprietary company is barred from raising capital through issuing
prospectus for sale of shares, it does not deposit its constitution with the Australian Securities
and Investments Commission (ASIC). The prohibition is captured by Section 113 (3). However,
a public company must deposit its constitution with ASIC. According to Section 136(1) of the
Corporations Act, the members of the public company must consent in writing to the constituents
of the constitution. Of note, a company need not have a constitution at the time of registration.

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The same may be lodged with ASIC within 14 days after registration pursuant to a special
resolution by the members to adopt.
The management of a proprietary company should have at least one director. Unlike
public companies which ought to have a minimum of three directors and a secretary, proprietary
companies have the option to either retain or not have a secretary (Du Plessis, Hargovan, &
Harris, 2018). One of the directors of the proprietary company may double as the secretary. Of
note, if a proprietary company opts to have a secretary, the secretary must live within Australia.
The requirement for Australian residence also applies to the director of the proprietary company
thus a proprietary company may be required to keep a register. A public company is legally
obliged to keep a register of its directors including their residence details. Also, the secretary to a
public company must live in Australia.
Differences between a company limited by shares and a company limited by guarantee
In the context of company law liability may be limited either by shares or by guarantee. It
is important to mention that a company that is limited by shares has shareholders but a company
that is limited by guarantee has members (Hicks & Goo, 2008). The absence of shareholders in a
company limited by guarantee is due to the fact that such a company does not issue shares to its
members.
Under the Corporations Act, the members liability to contribute to the company’s assets
is limited to the amount if any paid on their shares. In light of a company limited by guarantee,
the members undertake to contribute a certain amount to the assets of the company in the event
of the company being wound up. The amount is specified in the constitution or articles of
association (Du Plessis, Hargovan, & Harris, 2018). In case of insolvency, the limitation of
liability extends to shareholders or members as opposed to the company itself (Sealy &

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Worthington, 2013). The liability of shareholders or members is limited because of the concept
of corporate veil where the company is legally presumed to exist separately and independently
from the shareholders or members.
Topic 3: Delhi Australian Curried Limited
The members/shareholders of Delhi Australian Curries Limited have asked the directors
of that company to call a meeting of the company to discuss the performance of the directors in
relation to a number of contracts (Du Plessis, Hargovan, & Harris, 2018). The directors refuse to
call the meeting. The members/ shareholders still want a members’ meeting to take place. The
section below sheds light on the rights and duties of directors, as well as the effect of their non-
compliance with the request of the members/ shareholders with respect to holding the meeting.
In accordance with section 249D of the Corporations Act, the directors have a duty to call
for a meeting upon request by the members or shareholders (Marshal & Ramsay, 2012).
However, the request in not automatic and it must be qualified by a certain threshold (Hill,
2010). The statute requires that at least 5% or 100 shareholders with voting rights petition the
directors for a meeting (Du Plessis, Hargovan, & Harris, 2018). It is important to note that shares
represent voting rights with each shareholder having the right to vote. The one share one vote
rule in public companies is recognized and enforced by ASIC.
A case which clarified the nature of directors’ duties is the James Hardie case. In
recognizing the fiduciary nature of the relationship between a director and the company’s
shareholders, the court observed that directors should promote and protect the interests of
shareholder (King & Wood Mallesons, 2013). The fiduciary nature of directors’ relationship with
members obliges the directors to exercise reasonable care in the discharge of their duties (Du

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Plessis, Hargovan, & Harris, 2018). One of the elements of reasonable care is that directors
should not exercise judgement or execute a decision relating to a matter that they have direct or
material interest (Kershaw, 2012). The requirement to not participate in matters where they have
interest is captured by Section 180(2) of the Corporations Act. The same is also reflected in
section 182 of the Act. Section 182 prohibits directors from using their position to their
advantage. Expressly, section 182 makes it illegal for directors to undertake actions that are
detrimental to the interests of the shareholders. In the present fact pattern, the directors’ decision
to refuse the meeting is detrimental to the members (King & Wood Mallesons 2013). The same
action amounts to undue use of position to their advantage. Of note, the meeting is meant to
point out their failures thus any action by the directors to sabotage the meeting is detrimental to
the shareholders.
A director acting on behalf of the company does not incur liability. According to the
court in Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968), directors
are not liable for any decisions made in good faith for the interests of the company. However,
liability may be borne by a director if it is proved that the actions of a director were detrimental
to individual and vulnerable shareholders (Mayanja, 2014). Such actions may be due to
negligence of directors. The liability is limited since there is a legal presumption that the
shareholders are in a consensus that affirms the acts if the director. As such, any act by a director
or the directors is assumed to be in accord with the wishes of the shareholders and such an act or
acts is presumed to be within the scope of duties expected of a director (King & Wood Mallesons
2013). However, the existence of evidence to suggest that shareholders were against the decision
undertaken by the directors is enough ground for rebuttal of the presumption that the directors

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acted in line with the wishes of the members or shareholders (Du Plessis, Hargovan, & Harris,
2018).
Under section 232, the Court may grant an order against an interested director who has
acted to the detriment of the shareholders. A director will be found to have violated his duties if
he acts contrary to articles 181 to 183 which provide for the duties of a director (Bruner, 2013).
A case which discussed the fiduciary obligation of a director to act in good faith is Re Smith and
Fawcett Ltd (1942). Also, Percival v Wright (1902) provides for the duty to act in good faith.
However, the directors may argue that their fiduciary duties relate to the company rather than
individual members. In this light, it is important to distinguish Percival v Wright (1902) from
Peskin v Anderson (2000). In the Percival case, the court stated that the directors’ duties of
loyalty extended to the company but not to members. However, the Peskin court observed that
directors have a fiduciary relationship with individual members hence they should undertake
actions in good faith to protect members from unfair disadvantage.

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References
Anderson, H. (2009). Piercing the veil on corporate groups in Australia: the case for reform.
Melb. UL Rev., 33, 333.
Bruner, C. M. (2013). Is the Corporate Director's Duty of Care a Fiduciary Duty-Does It Matter?
Wake Forest L. Rev., 48, 1027.
Corporations Act 2001 (2001).
Du Plessis, J. J., Hargovan, A., & Harris, J. (2018). Principles of contemporary corporate
governance. Cambridge University Press.
Harlowe's Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL [1968] HCA 37; 121 CLR
483.
Hicks, A., & Goo, S. H. (2008). Cases and materials on company law. Oxford University Press.
Hill, J. G. (2010). The rising tension between shareholder and director power in the common law
world. Corporate Governance: An International Review, 18(4), 344-359.
Kershaw, D. (2012). Company law in context: text and materials. Oxford University Press.
King & Wood Mallesons. (2013, February). James Hardie … the Shafron High Court decision –
Company executives. On Board.
Lowry, J., & Dignam, A. (2008). Company law. OUP.
Marshall, S., & Ramsay, I. (2012). Stakeholders and directors' duties: Law, theory and evidence.
UNSWLJ, 35, 291.
Mayanja, J. (2014). Clarifying the Object of Directors' Endeavors: What Australia Can Learn
from the United Kingdom. UNSWLJ, 37, 874.
Percival v Wright [1902] 2 Ch 421.
Peskin v Anderson [2000] EWCA Civ 326.

ASSESSMENT 2 9
Re Smith and Fawcett Ltd. [1942] Ch 304.
Sealy, L., & Worthington, S. (2013). Sealy & Worthington's Cases and Materials in Company
Law. Oxford University Press.