Formation and Incorporation of Companies in Australia

This article discusses the formation and incorporation of companies in Australia, including the types of corporations, selecting the name of the corporation, registered office, consent and share details, constitution or replaceable rules, lodging application and payment of fee, and the effect of incorporation. It also covers the lifting of corporate veil and the imposition of tortious liability on corporations. The article is relevant for students studying corporation law in Australia.

Corporation Law

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Answer 1
Issue
In this case, the key issues are raised relating to formation and incorporation of companies
in Australia such as selecting the name of the corporation, register officer and filling the
registration application. Another issue is whether incorporation of a company will be
beneficial than compared to sole proprietorship?
Type of Corporations
The Corporations Act 2001 (Cth) (the Act) is the key legislation which provides information
regarding incorporation and governance of companies in Australia. Section 112 of the Act
recognises different types of companies which are primarily categorised into two parts –
public and proprietary company (Legislation, 2019). Public corporations are further
categorised into four divisions which include limited by share, unlimited with share capital,
no liability and limited by guarantee. The proprietary companies are categorised into two
types which include limited by shares and unlimited with share capital.
Name of the Corporation
The provisions regarding selection of the name for the corporation is given under section
148 of the Act. Parties can only select an available name for the company. It is mandatory
for public companies to include the word ‘Limited’ at the end of their name. In the case of
proprietary companies, the word ‘Proprietary Limited’ is mandatory to be included in the
end. The no liability corporations have to include the word ‘No Liability’ at the end, and
unlimited proprietary companies have to add ‘Proprietary’ in their name (ASIC, 2019a).
Section 147 provides that parties cannot select names which are already selected by other
corporations. Moreover, they cannot select those words which are unacceptable by the ASIC
or governmental authorities. The examples of unacceptable words include federal or
commonwealth. Parties can check National Names Index on the website of ASIC to check
the availability of their name. Furthermore, section 152 provides that people have the right
to reserve a name for a company by filing prescribed form to ASIC (ASIC, 2019a). After filing
the application, the name is reserved for two months which is an obligation imposed on

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ASIC. The party can file another application in order to extend the period of reservation for
further two months.
Registered Office
Section 119A of the ACT provides key policies in relation to jurisdiction for companies for
incorporation. As per this section, a corporation can be incorporated in a particular state or
territory. An application is filed by corporations for registration under section 117 (2) (n) and
601BC (2) (o) (Austlii, 2019). Under the registration certificate, an obligation is imposed on
ASIC to include the name of the territory or state; however, the difference in state or
territory did not affect the legal rights of corporations. In this process, the proposed
addressed which is made by the parties in the registration application become the
permanent address of the company. Usually, parties select a registered office location which
must be close to the place which the corporation manage or conduct its operations.
Displaying the name of the corporation on the location is mandatory as per section 144.
Consent and Share Details
The structure of the company is decided by its members during the registration in which
details regarding the number of shares and directors’ authorities are mentioned. Along with
these details, the information regarding the consent of shareholders, directors and other
members are taken (Business, 2018). While incorporating a proprietary company, the
approval of all members is necessary to be present. Members have to ensure that all these
details are correct and they have to submit these at the date of registration.
Constitution or Replaceable Rules
The Constitution of a company creates a contract between the company and its members,
directors, and secretary. Section 136 provides provisions regarding adoption of the
Constitution which governs the actions of members and directors. In case the company did
not adopt a constitution, then its operations are governed by the replaceable rules which
are given under the Corporations Act (ASIC, 2017). Section 141 provides details regarding
replaceable rules in which principles are included for power, selection and appointment of
board of directors, maintenance of book of accounts and others. In the case of no liability
companies, it is mandatory for them to adopt a Constitution.

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Lodging Application and Payment of Fee
The provisions regarding lodging of registration application for incorporation of the
company with ASIC is given under section 117 (Chen, Dyball and Wright, 2009). Following
items are necessary to be included in the registration application:
 Details regarding the name of the company, its type, complete address, location of
the registered office
 Details regarding the shareholders and their name, number of shareholding, consent
and family details
 Details regarding the payment of the amount by each member
 The application and its details must be included in prescribed format
A fee is imposed on parties by ASIC for filing an application for registration of the company.
In case the members wanted to reserve a name, then they have to pay a fee of AU$48. The
registration fee is AU$479 in case the company has share capital. In case the company did
not have share capital, then the fee is AU$395 (ASIC, 2019b).
Effect of Incorporation
The provisions regarding the impact of registration of the company are given under section
119. It provides that the company comes into existence on the day of incorporation based
on which it acquires various rights and liabilities (Austlii, 2019). The existence of the
company continues until its liquidation.
Applicability
In the given case study, incorporating a proprietary company is a more suitable option for
Richard’s business than compared to incorporating a public corporation. Richard will receive
many benefits such as expansion of business, tax exemptions, effective control over
operations of the business and others. Both the names suggested by the parties, Ridali and
Rich’s Guaranteed Olives, are present on the National Names Index based on which they can
be selected for the registration of the company. Hunter Valley is the right location to be
selected as the register office of the company. Consent of Richard and his sons are
necessary while filing the registration application and paying the fee for the company.
Selection of the Constitution is a better option than compared to replaceable rules since

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more circumstances are covered in the Constitution which makes it a safe option. The
content included in the application and method of lodging is mentioned above. Conclusively,
Richard and Sons should incorporate a company since it will be more beneficial for them
than compared to sole proprietorship.

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Answer 2
Issue
In the given case study, the key issue is whether tortious liability can be imposed on Cosmo
Mine Ltd (CM) for failure to maintain a duty of care to ensure the safety of the workers and
public to receive safe environment. Another issue is relating to lifting of corporate veil in
order to impose penalty on the directors of Cosmo Mining Services Pty Ltd (CMS).
Lifting of Corporate Veil
A corporation has a separate legal existence based on which it has separate rights and
liabilities from its members and directors. Although the directors are responsible for taking
business decisions in the company; however, they cannot be held personally liable for its
actions (Stubbs and Rogers, 2013). Third parties can directly sue the company rather than its
members and directors for violating contractual obligations. This protection is available for
them based on the corporate veil which separates their legal entity from the company.
However, the court has the right to lift or pierce this corporate veil in order to hold the
directors liable for their actions. Following are three different cases in which the court lifted
the corporate veil to hold the directors liable for the actions of the company.
 Gilford Motor Co. v Horne (1993) Ch 935
The court provided in this case that the formation of the company was sham or façade. The
purpsoe of incorporating the corporation was to deceit authorities and the public. A
contract was constructed between the employee and the employer in which details were
inlcuded regarding an obligation on the employee to not engage or start a similar business.
However, the employee started a company after giving his resignation to conduct similar
business as the employer. In this new corporation, the employee was acting as the director
and shareholder along with his family members. It was held by the court that the
corporation is just a scam and façade which is incorporated by the employee to deceit his
former employer based on which the employee was found guilty for breaching the contract
(Alcock, 2013).
 CSR Ltd. v Young (1998) Aust Tort Reports 81-468

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This is a leading case in Australia in which the court imposed a penalty on the parent
company for the actions of the subsidiary company. In this case, a subsidiary corporation
was incorporated by the management of the parent company in order to conduct the
business operations. Due to this relationship, the subsidiary corporation was bound by the
ordered of the parent company. The plaintiff suffered from mesothelioma due to the actions
of the subsidiary company, and a suit was filed against both the parent and subsidiary
company (McConnell, 2016). It was held by the court that a duty of care is owed by both
corporations towards the residents living in the town where they conduct their operations.
It was held that the parent company is also liable since it is responsible for controlling the
operations of the subsidiary company.
 Smith, Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER 116
This is a relevant case in which the court highlighted the imposition of liability on the
holding corporation for the actions of the subsidiary. It was found by the court in this case
that the ownership of the waste paper business was not transformed by the holding
company to its subsidiary. Based on this finding, the court provided that the relationship
between the two companies shows that the actions of the subsidiary were in the control of
the holding enterprise (Kouo, 2016). Thus, a penalty can be imposed on the holding
corporation for the failure of the actions of the subsidiary since its actions are in the control
of the holding.
In the given case study, the judgments given in cases mentioned above applied. In this case,
the corporation failed to comply with its duty of care to protect the employees from
injuries. CMS was acting as the agent for CM since the controlling power of CMS was hold by
CM. The majority of shareholder in both companies was similar who was responsible for
controlling the operations of the company. Therefore, a liability can be imposed on CM for
the actions of CMS. CM is obligated towards its employees and citizens to ensure that they
are protected from its practices; therefore, Terry has the right to hold CM liable to claim
compensation for his loss.

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Scam and Façade
In order to understand the liability of corporations which are formed as scam or façade, the
judgement of Creasey v Breachwood Motors Ltd (1993) BCLC 480 can be evaluated. This is a
relevant case in this context in which the general manager of the company was fired from
the company in a wrongful manner from Breachwood Welwyn Ltd, and he failed a suit
against the company. Before the completion of this suit, the corporation was wound up, and
its assets were transferred to Breachwood Motors (Grantham, 2013). Breachwood Motors
settled all the debts of the company except for the suit filed by the general manager. The
court imposed liability on Breachwood Motors for the actions taken by the Breachwood
Welwyn based on the doctrine of piercing of corporate veil. It was held by the court that the
incorporation of the new company is a scam and façade. Similar facts are present in the case
of Lazarus Pty Ltd. The objective of incorporating this corporation is to avoid the liability of
CMS based on which liability can be imposed on the new corporation for the actions of CMS.
Liquidated company’s liability
The legal existence of CMS was terminated by the shareholders by passing the resolution
through unanimous vote. The objective of this decision was to avoid the liability towards
employees and the public. The court can lift the corporate veil to impose a liability on the
shareholders of the wound up company and hold them liable to pay damages to Terry.
Conclusion
In conclusion, CMS was acting as the agent for CM since both of them have similar
shareholders who control their actions. The actions of CMS resulted in negatively affecting
the Terry and the citizen of Gunbarrel since they suffer from cancer. Therefore, they can
impose an obligation on CM for the failure of maintaining a duty by CMS by lifting the
corporate veil. Moreover, Lazarus Pty Ltd is incorporated to eliminate the liability of the
company based on which its incorporation is scam or façade, and liability can be imposed on
CM’s directors and shareholders by lifting the corporate veil.

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References
Alcock, A. (2013) Piercing the Veil-A Dodo of a Doctrine. Denning LJ, 25, p.241.
ASIC. (2017) Constitution and replaceable rules. [Online] Available at:
https://asic.gov.au/for-business/registering-a-company/steps-to-register-a-company/
constitution-and-replaceable-rules/ [Accessed 23/01/2019].
ASIC. (2019a) Steps to register your business name. [Online] Available at:
https://asic.gov.au/for-business/registering-a-business-name/steps-to-register-your-
business-name/ [Accessed 23/01/2019].
ASIC. (2019b) Fees for commonly lodged documents. [PDF] Available at:
https://download.asic.gov.au/media/4306402/fee-indexation-2017-info-30-fees-for-
commonly-lodged-documents.pdf [Accessed 23/01/2019].
Austlii. (2019) Corporations Act 2001. [Online] Available at:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed 23/01/2019].
Business. (2018) Register you company. [Online] Available at:
https://www.business.gov.au/registrations/register-your-company [Accessed 23/01/2019].
Chen, R., Dyball, M.C. and Wright, S., 2009. The link between board composition and
corporate diversification in Australian corporations. Corporate Governance: An International
Review, 17(2), pp.208-223.
Corporations Act 2001 (Cth)
Creasey v Breachwood Motors Ltd (1993) BCLC 480
CSR Ltd. v Young (1998) Aust Tort Reports 81-468
Gilford Motor Co. v Horne (1993) Ch 935
Grantham, R. (2013) The corporate veil: An ingenious device. U. Queensland LJ, 32, p.311.
Kouo, C. (2016) Post-Prest Corporate Group Veil Piercing: Alternative Avenues to
Justice. Legal Issues J., 4, p.65.

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Legislation. (2019) Corporations Act 2001. [Online] Available at:
https://www.legislation.gov.au/Details/C2018C00424 [Accessed 23/01/2019].
McConnell, L. (2016) Extracting Accountability from Non-state Actors in International Law:
Assessing the Scope for Direct Regulation. Abingdon: Routledge.
Smith, Stone & Knight Ltd v Birmingham Corp (1939) 4 ALL ER 116
Stubbs, W. and Rogers, P. (2013) Lifting the veil on environment-social-governance rating
methods. Social Responsibility Journal, 9(4), pp.622-640.