Steps for Formation of Company in Australia and Liability of Parent Company for Subsidiary's Actions

This article discusses the steps required for the formation of a company in Australia, including the types of companies available, provisions related to the name and registered office of the company, and the rules for managing the company. It also explains the liability of a parent company for the actions of its subsidiary and the effects of winding up of a company. The article cites relevant provisions of the Corporation Act 2001 (Cth) and case laws to support the discussion.

Running Head: BUSINESS LAW
Business Law
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Answer 1
Issue
The issue in this case is to identify the steps which are required for the formation of company in
Australia
Law
Section 112 of the Corporation Act 2001 (Cth) provides provisions on relation to the types of
company available to a person for the purpose of carrying out a business activity in Australia.
Under these provisions it has been stated that a person can either register a proprietary company
which may be limited by shares or unlimited with share capital or a public company which may
be limited by shares, limited by guarantee, unlimited with the share capital or a no liability
company.
There are a few major differences between a public and a Proprietary company. The major
differences are in relation to the way in which they are governed and what rights they have. A
public company is allowed to raise money from the general public by issuing a prospectus and
registering itself with the Australian Securities Exchange as a listed entity. On the other hand
there is no way in which a public company may raise capital from the public. There are also
various tax benefits which are provided while doing business by using a company form of
business structure. The profits of the business are taxed at a fixed rate of 30%. In addition where
the business has suffered any loss in the previous years the taxation system allows the business to
offset such taxes against the profits of the company in future any time they want.

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Provisions in relation to the name of the company are provided through the provisions of section
147- 156 of the CA. A name to be selected for the company would be deemed as available unless
such name is similar to a name which is registered or reserved under the Act for another
company or similar to a name which is registered on the business names register in relation o
some other body or individual who is not the person applying for the name. The name will also
not be valid if it is not allowed under the regulations. According to section 148 of the CA a
company must have the words limited if it is a public limited company and Proprietary Limited"
in case it is a limited proprietary company. In case the proprietary company is unlimited it must
have the name Proprietary or Pty after it.
Provisions in relation to a registered office are provided under the provisions of section 142 of
the CA. It has been stated that the company has to have a registered office which is located
within the jurisdiction of the CA. The company has to notify the Australian Securities and
Investment Commission about any changes in the registered place in the company. Under section
143 the ASIC have the power of changing the registered address of the company to the address
of the directors. The company must display its registered name at the registered office of the
company.
Under section 210D of the CA it has been provided that the rules of this section will, be breached
in case the person has not provided a signed consent to a company to act as the directors of the
company before actual appointment as a director is carried out. The consent has to be kept by
the company under subsection 210D (2). The company must also provide for the share
certificates in relation to the number of shares held by the directors of the company at the time of
incorporation. The contents of a share certificate have been provided under section 1070C of the

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CA. As per the section the share certificate must set out the shares held by the company, the
name of the company, the class of the shares, the amount unpaid on the shares.
Form 201 has to be lodged with the ASIC to form a company.
The provisions in relation to replaceable rules are provided under the provisions of section 135
of the CA. The company can be managed by either the replaceable rule or its own constitution or
both. These provisions have to be set out in the constitution of the company.
Under section 19 of The CA it has been stated that the company comes into existences as a body
corporate as soon as it has been registered. The name which is present on the certificate of
registration is the name of the company. It stays into existence until the company has been
deregistered under chapter 5A. After registration the directors of the company has to ensure that
they comply with directors duties under section 180-191 and the company has to ensure that it
complies with other requirements under the Act.
Application
In the given situation Richard and his sons have to chose a public company for registration under
section 112 of the Act. This is because they want to raise funds and a public company is allowed
to raise money from the general public by issuing a prospectus and registering itself with the
Australian Securities Exchange as a listed entity. On the other hand there is no way in which a
public company may raise capital from the public.
They may choose any name for the company unless name is similar to a name which is
registered or reserved under the Act for another company or is barred by law under section 147
of the CA. This “Ridali” or “Rich’s Guaranteed Olives” can be selected as a name until it is

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followed by the word “Limited” or “Ltd”. The need to check the availability of names with the
ASIC before registering it.
They have to have the registered company of the office within the jurisdiction of the CA. All
consent form and share certificates have to be provided via the provisions of 210D and 1070C.
They can choose to manage the company by either the replaceable rule or its own constitution or
both. These provisions have to be set out in the constitution of the company. The company will
be registered by lodging form 201 with the ASIC and it will come into existence as soon as it is
formed.
Conclusion
The above steps have to be followed for the registration of the company
Answer 2
Issue
1. Whether CMS is liable to the injury which has been caused to terry
2. Whether the sale of CMS to Lazarus Pty Ltd valid
3. What are the effects of winding up of CMS
Rule
1. A parent company is liable for the tortuous actions of the subsidiary company. In the case
of CSR Ltd v. Young [1998] the plaintiff had inhaled asbestos fibres while he has been
employed by the company Asbestos Products Pty Ltd. The factory where the plaintiff

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used to work was not vented properly and also did not have any window. The employees
were also not provided with protection gear. When the plaintiff suffered mesothelioma
the company was liquidated. The company was the subsidiary of CSR at all relevant
times. The directors of Asbestos products were the staff members of CSR at all relevant
times. The court held that where the parent company has a very close involvement with
the activities of the subsidiary the parent company would be liable. It was stated by the
judge that CSR had formed ABA as its totally owned subsidiary and thus gave it
complete powers of an agent and thus it was involved in the omissions and Acts of ABA.
2. The subsidiary company may be found to have been the agent of the holding company as
found in the case of Smith, Stone & Knight Ltd v Birmingham Corp [1939] 4 All ER
116. In this case the subsidiary company was holding some land on behalf of the parent
company Birmingham Waste Co Ltd (BWC) a compulsory purchase order of the land
had been issued by BIRMINGHAM CORPORATION and any company owning the land
was to be paid for land and compensation was to be provided to any owner who ran
business on the land. As the subsidiary was not owning the land BC claimed that the
subsidiary would not get the money. The court stated that the subsidiary was the agent of
the holding company as it was merely holding land on behalf of the holding company.
3. The court may be entitled to lift the corporate veil when the subsidiary company has been
formed as a sham or façade. The provisions have been discussed in the case of Gilford
Motor Co Ltd v Horne [1933] Ch 935. The company if formed for a fraudulent activity
or to avoid a legal obligation than it would be considered as a sham or façade.

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Provisions relating to a company being a sham or facade have also been discussed by the case of
Creasey v Breachwood Motors Ltd [1993] BCLC 48. In this case general manager had been
terminated from his post in the company. He wanted to claim unfair dismissal but before the
claim could be made the company ceased its operations and sold all its assets to another
company. The GM got an order to claim £53,835 against Breachwood Welwyn Ltd. The plaintiff
made the claim against the new company and was successful. The directors of the previous
company were also the directors of the new company and had intentionally ignored their duties
as directors and shareholders.
Application
In the given situation it has been stated via the facts that Terry has been an employee of CMS
which was the subsidiary of CM. In relation to the first issue CM will be liable in case an
analogy can be created in relation to the discussion in paragraph 1-3 and the present facts CM
will be liable for the actions of CMS and not otherwise. It has been provided via the facts that
120 of the 200 shares of CMS had been owned by CM. It has been further stated that CMS
operates lead, zinc and copper mine at Gunbarre. CM leases all mining equipments form New
Vision Bank Ltd and subleases it to CMS which pays CM the leasing charges as well as an
additional 10 per cent. This signifies that the parent company has a very close involvement with
the activities of the subsidiary. Thus here the rules of CSR Ltd v. Young case will apply and
make CM liable for the actions CMS. In addition it can also be stated in this situation that CMS
is the agent of CM. This is because it is operating business their behalf only as required to create
agency under the provisions of Smith, Stone & Knight Ltd v Birmingham Corp. However CMS
has not been created for any fraud or to avoid legal obligations and therefore of Gilford Motor
Co Ltd v Horne will not apply.

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Thus as CMS is the agent of CM and CM had immense control over the activities of CMS, CM
will be liable for the actions of CMS.
Even where the business of CMS is sold to Lazarus Pty Ltd Terry will have the right to bring a
claim against Lazarus Pty Ltd or CM. This is because through the application of the case of
Creasey v Breachwood Motors Ltd it can be stated that Lazarus Pty Ltd has been formed to
ensure evade liability by the shareholders and directors of CMS. Thus the court as it allowed in
the case of Creasey v Breachwood Motors Ltd will also allow Terry to make a claim from
Lazarus Pty Ltd.
The claim can also be made irrespective of whether CMS is liquidated or not as terry has the
right to make a claim against CM or Lazarus Pty Ltd.
Conclusion
Therefore it can be concluded from the above discussion that Terry may make a claim from CM
or Lazarus Pty Ltd. In relation to the losses he has faced because of the negligence of CMS
which was the subsidiary of CM.

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References
Corporation Act 2001 (Cth)
Creasey v Breachwood Motors Ltd [1993] BCLC 48
CSR Ltd v. Young [1998]
Gilford Motor Co Ltd v Horne [1933] Ch 935
Smith, Stone & Knight Ltd v Birmingham Corp [1939] 4 All ER 116