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LAW20004 - Company Law Assignment

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Added on  2020-09-18

LAW20004 - Company Law Assignment

   Added on 2020-09-18

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LAW20004- Company LawWeek 1:Outline the historical development of corporations law in AustraliaThe name corporation is derived from the Latin word corpus, meaning body. A corporation is a body of persons but with its own legal identity and long-term existence and ownership of property separate from and beyond the life of any individual. Australia was initially comprised of six separate British colonies; each with their own parliament and law-making powers. Each colony's set of laws were based on the Companies Act 1862 (UK). In 1901 the colonies agreed to unite into a federation of states to form the nation of Australia. Even so, each state still controlled its own corporations law. For a long time companies had to register separately in each state and each state had its own stock exchange. The Corporations Act 2001 reinstated the jurisdiction of the Federal Court resulting in one centralised set of laws for the whole of Australia. This has been essential in providing a consistent environment for Australian businesses to function within.The Corporations Act makes a formal distinction between ownership and control of companies. The corporation Act and company constitutions give shareholders significant rights. Explain the key milestones that contributed to the development of company law in AustraliaFederation of Australia Corporations Act (2001) (Links to an external site.)Links to an external site.2Australian Securities and Investments Commission (Links to an external site.)Links to an external site. (ASIC; pp. 10–14) 3The takeovers panel (Links to an external site.)Links to an external site. (pp.15-16) 4Australian Securities Exchange (Links to an external site.)Links to an external site. (ASX; pp. 14-15) 5Australian Prudential Regulation Authority (Links to an external site.)Links to an external site. (APRA) 6Australian Accounting Standards Board (Links to an external site.)Links to an external site. (AASB; p. 17) 7Financial regulation (pp. 16–18) Describe the essential characteristics of a company.
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Companies come in all shapes and sizes, from your local small business to large multinational corporations. They may exist for an extensive range of purposes, have a variety of shareholders, undertake differing activities and have variable employee numbers. Even so, all companies have some essential core characteristics. The modern limited liability company has shaped the way that modern society functions. It allows for the pooling of large sums of capital from investors who buy shares, for use by entrepreneurs and managers to develop businesses. These businesses are the main drivers of employment and wealth in our society.The limited liability company (pp. 29-32)The company as a separate legal entity (pp. 33-39)Application to subsidiaries (pp. 39–41)The corporate 'veil' (pp. 41-42)How statute law allows the 'veil' to be lifted (pp. 42-46)WEEK 2:1.Understand the differences between different company types. 2.Understand what the company constitution is. 3.Be aware that a constitution with an objects clause, memorandum of association and articles of association has not been required since 1988.4.Understand what replaceable rules are. Understand the nature of the ‘contract’ that they create. 5.Understand how replaceable rules can be changed. Public and Private Companies: The Corporations Act (2001) makes a distinction between a public company and a private company (known as a Proprietary Limited company - Pty Ltd). There are strict requirements for public companies. The act requires all companies to be registered with ASICand keep a registered business office.Public CompaniesPrivate CompaniesPublic companies must be listed on the stock exchange (ASX) - a licensed public market - where shares are issued for sale to the public.Private companies are not listed on the stock exchange. They must not engage in public fundraising – s113(3)
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What types of companies operate in Australia?Characteristics of public and private companies (pp. 85-92)The Corporations act imposes greater disclosure obligations on public companies because they may raise money from large numbers of people. Family run businesses are usually able to raise funds from their own internal sources or from lenders. Both public and private must have at least 1 member s114. Section 113 specifies 50 as the maximum number of non-employee shareholders of a private company. Public has no limit. Private companies are prohibited by s113(3) from engaging in any activity that would require disclosure to investors under Ch6D. this means that private companies cannot raise funds by offering its shares or debentures to a large number of people. Public companies that wish to issue shares, debentures or other securities must comply with the fundraising provisions CH 6D. Companies limited by shares (pp. 80-81)Most common type of company. A company limited by shares is defined in s9 as a company formed on the principle of having the liability of its members limited to the amount, if any, unpaid on the shares respectively held by them. Public companies must comply with ASX listing rules – s793C (regular disclosures).Private companies are not required to prepare annual reports and audits (unless the members request otherwise – s292 but they must still prepare profit and loss statementsPublic companies must hold an Annual General Meeting (AGM) and publish an Annual Report for members with a statement of audited Financial Accounts s301Private companies do not have to hold Annual Meetings.Public companies must appoint a Company Secretary as administrator 204APrivate companies are not required to appoint a Company Secretary as administrator.Public companies must have a minimum of three directors.Private companies only need one director and one member. Resolutions can be passed by the signing of circulating documents s 249AFor a public company, s203D and s203E require an ordinary resolution of members for the removal of any directors; they cannot be removed by other directors.Private companies do not require an ordinary resolution of members for the removal of directors.
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The issue price for a share is determined by agreement between the company and the investor. Shares may be issued on the basis that the investor pays the entire issue price in one instalment. Referred to as fully paid shares- shareholder that has these has no liability to contribute any further amounts to the company. Partly paid shares- shareholder only pays part of the issue price immediately. Liable to pay the balance of the issue price if the company makes the call. The shareholders of a company limited by shares have limited liability, creditors of such a company do not have access to the personal property of the shareholders in order to satisfy their debts. Therefore s148(2) requires the word “limited” or “ltd” as a part of and at the end of its name. This shows possible creditors that the liability of the shareholders in limited and debts of the company can only be satisfied from the assets of the company. Companies limited by guarantee (pp. 81-84)A company whose members have their liability limited to the amounts that they have undertaken to contribute to the property of the company in the event of it being wound up: s9. They do not have a share capital so members do not contribute capital while the company is operating. Still maintain the advantages of being legal entities with the liability of their members limited to the amount of the guarantee. However if a company cant meet its liabilities, its members are liable to pay up to the amount specified as the members’ guarantees: s 517. The limitation of this type of company is that it does not raise initial or working capital from its members. Very rarely used for this reason. Used for non-profit organisations (charities, sporting organisations).Past members of the company may also be liable if the assets of the company are insufficient to meet its debts and the present members are unable to meet the company’s liabilities. Past members only have to contribute to debts from the time they were involved as members, not debts since they have left. Companies limited by guarantee do not have share capital so they can not be private companies, have to be public. Unlimited companies (p. 84)An unlimited company is defined in s 9 as a company whose members have no limit placed on their liability to the company. Members are liable in a winding up for the debts of the company without limit if the company has insufficient assets to meet its debts. Similar to a partnership in a way, however is considered a separate legal entity. No liability companies (pp. 84-85)A no liability company must: Have a share capitalState in its constitution that its sole objects are mining purposesHave no contractual right under its constitution to recover calls made on its shares from a member who fails to pay a call.
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A no liability company is prohibited from engaging in activities that are outside its mining purposes objectives s 112(3). The name must contain “no liability” or “NL” s148(4). Shares in a no liability company are issued on the basis that if a company is wound up, any surplus must be distributed among the shareholders in proportion to the number of shares held by them irrespective of the amounts paid up. Large and small private companies (pp. 90-92).Under s 45A(2) a private company is regarded as a small private company for a financial year if it satisfies at least 2 of the following criteria:1.The consolidated operating revenue for the financial year of the company and the entities it controls in less than $25 million;2.The value of the consolidated gross assets at the end of the financial year of the company and the entities it controls is less than 12.5 million;3.The company and the entities it controls have fewer than 50 employees at the end of the financial year. The first 2 criteria are calculated in accordance with applicable accounting standards s 45A(6). In counting employees for purposes of the s 45A definition, part-time are taken into account as an appropriate fraction of a full-time equivalent s 45A(5). The main advantages of the small private companies are: They are subject to fewer requirements in relation to preparation, lodgement and audit of financial reports. Not required to prepare annual financial reports or appoint an auditor. Significant saving costs. (the only need to provide them is if the shareholders vote for them, or they are asked by ASIC). They are required to prepare profit and loss statements for taxation purposes. Company audits (p. 89).Public companies and large private companies must appoint an independent auditor to audit their financial reports. In some circumstances ASIC may relieve a large private company from the requirement to appoint an auditor. Trustee Companies: (page 98-99)The development of Equity Law in the 16th century saw the creation of the Law of Trusts for charitable institutions. The concept of a trust has expanded and is widely used in modern business and corporations. In a trust, a trustee is appointed to hold and manage property on behalf of beneficiaries. A trustee can be liable for shortfalls in the trust funds. As companies are considered a separate legal entity they can act as a trustee of a managed fund. Companies are used because of their limited liability, tax benefits and perpetual succession.
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The company constitution and replaceable rulesInitially an Australian company had to submit a written constitution when applying for registration. In order to achieve greater uniformity and improvements in standards of governance the Corporations Act now defines a set of default internal governance rules s 134. These rules are called ‘replaceable rules’ and are set out in s 141 of the act.These rules make the requirement for a constitution for new companies obsolete. Some are mandatory, some only apply to public companies and some only apply to private companies. Most rules however can be replaced thereby allowing a company to develop its own constitution based on the default rules s 135.If a company no longer wishes to follow its own rules it needs to follow the appropriate process to change them. A special resolution must be passed to alter the rules in the constitution. S9 defines a ‘special resolution’ as one which is passed by at least 75% of the votes of members entitled to cast a vote. Additionally, any changes made to their rules or constitution should be ‘fair’.The company constitution (pp. 108-110)Prior July 1998- all companies were required to have a constitution consisting of two documents: the memorandum of association and the articles of association. Companies formed after July 1998 have a choice regarding the rules governing their internal administration. Under s 134 those rules may comprise a constitution specially drafted to suit a company’s particular needs, or the replaceable rules in the Corporations Act or a combination of both. Post 1998 consists of one document. Companies may adopt a constitution in any of the following three ways: 1.A new company may adopt a constitution on registration if the persons named in the application for the company’s registration as having consented to become members, agree in writing to the terms of the constitution before the application is lodged2.A company that is registered without a constitution may adopt one by passing a special resolution 3.A court order is made under s 233 that requires the company to adopt a constitution. Public companies that have a constitution are required to lodge a copy with ASIC.Contents of constitution: There are no mandatory content requirements for constitutions. The constitution is a contract between:The company and each memberThe company and each directorThe company and the company secretary, andA member and each other member.A company can adopt a constitution before or after registration. If it is adopted before registration, each member must agree (in writing) to the terms of the constitution. If a
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constitution is adopted after registration, the company must pass a special resolution to adopt the constitution.The following companies must be governed by a constitution:'No Liability' public companies'special purpose companies' that want a reduced annual review fee.A private company (that is a special purpose company) must have a constitution. It doesn’t need to be lodged with us, but a copy must be kept with the company's records.A company must provide a current copy of the constitution to any member who requests it within seven days. If a fee is charged, the constitution must be provided within seven days of payment.Section 112 requires the constitution of a no liability company to state that its sole objects are mining purposes and that the company has no contractual right to recover calls made on its shares from a shareholder who fails to pay them. Replaceable rules (pp. 105-108)Replaceable rules are in the Corporations Act and are a basic guide for managing your company. If you're a private company, they can be an easy way to manage your company's governance. Replaceable rules do not apply to a private company if the same person is the sole director as well as the sole shareholder.Most companies can choose to use the rules to guide their internal governance. However, a company with a single member and single director who is the same person cannot use the rules. Of course, not all companies do choose to use them. They may wish to draft a constitution. However, in these instances, the rules can guide the drafting because they describe the kinds of rules and provide the essential standards that any constitution needs. While the rules are available to all companies, typically proprietary companies choose to use them. Public companies are larger entities with the resources required to both draft a constitution and keep it current.The greatest advantage of the rules is that a company who uses them is always up to date with developments and changes in regulation. If the government amends the rules, their organisation is automatically on top of, and can implement these developments. That saves the time and expense of modifying a constitution. As smaller businesses have fewer resources than larger ones, this is particularly beneficial. The rules are also popular for small companies in the setting up phase because they are a relatively inexpensive means of acquiring rules for internal governance. Of course, they likely need a lawyer to explain the rules to them. Nonetheless, they do not have to pay for a precisely drafted constitution.Alteration of the constitution and replaceable rules (pp. 119-123)A company can change or repeal its constitution by passing a special resolution. A special resolution needs at least 28 days notice for publicly listed
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companies and 21 days notice for other company types. For the resolution to pass, at least 75% of the votes cast must be in favour.Section 136(3) recognises that a company’s constitution may contain provisions that restrict the company’s ability to modify or repeal its constitution by imposing further requirements for such alterations over and above a special resolution. E.g. greater majority than 75%, and obtaining the consent of a particular person. WEEK 3:1.Understand the concept of the “directing mind and will” of a company.2.Be familiar with Turquand’s case and the ‘indoor management’ rule to protect outsiders. 3.Be familiar with the statutory assumptions presented in sec 128 and 129.4. Understand the powers of directors to bind the company in contracts with outsiders. 4.Be familiar with: Direct AuthorityImplied AuthorityCustomary AuthorityApparent authority The Directing mind and will of a company. (129-131)A company can enter into contracts and property dealings as if it were a real person s124. However the separate legal entity of a company is a legal fiction and it needs a board of directors to manage its affairs, a constitution and rules by which to operate and agents to carry out its relations with outsiders. This creates problems for those who make agreements with the company.A company does not have a guilty mind and cannot be put in prison, therefore the law has developed ways in which those who manage the company can be held liable as the ‘directing mind and will of the company’.Who is the directing mind and will? (pp. 131-135)A company may be likened to a human being. It has a brain that controls what it does. It also has hands that act in accordance with directions from the centre. The directing mind of the company could be considered to be various people. It could be considered to be the director or directors/ senior management or in some cases the company secretary. Ascertaining who is the directing mind and will of a large corporation is generally more difficult than in the case of a company with few directors and shareholders. In large corporations, control of he company’s business is typically delegated to a large number of executive and managers in the organisational hierarchy. The actions and intentions of senior management are
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