Legal Regulation of Business Structure

Running head: LEGAL REGULATION OF BUSINESS STRUCTURE
LEGAL REGULATION OF BUSINESS STRUCTURE
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LEGAL REGULATION OF BUSINESS STRUCTURE1
PART A
AMAZE Ltd
Two issues can be raised in relation to the proposed amendments of the constitution of
AMAZE Ltd. The first issue in the case is whether the first alteration of the constitution of
the company could be considered as legally valid towards the minority shareholders. The
second issue that can be raised in the case is whether the second alteration to the company’s
constitution for the expropriation of the shares of minority shareholders would be valid.
Corporations Act 2001
Section 136 of the Corporations Act1 describes the provisions required for the
adoption of a constitution of a company. Section 136 (1) provides that a company can adopt a
constitution during the company’s registration if all the members give written agreement
towards the terms mentioned in the constitution before the application for the same is made;
the section further provides that after the registration of the company, constitution can be
adopted by passing a special resolution. Section 136(2) provides that by way of special
resolution the constitution or any part of it can be modified or repealed. Section 136(3)
provides that unless the requirements for the modification or repeal mentioned under the
company’s constitution are completed, such modification or repeal would not be complete.
The effects of a company’s constitution and the replaceable rules have been provided
under section 140 of the Corporations Act 20012. Section 140 (1) of the Act states that each
member of the company is required to agree, observe and perform accordingly following the
constitution or replaceable rules as the constitution or the replaceable rules would be effective
towards the members as a contract. Section 140(2) any modification that requires the
1 Corporations Act 2001, s.136
2 Ibid, s.140

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members for taking up additional share, imposes any restriction of shares or increase the
members’ liabilities would not be binding to the members unless previously agreed in
writing. The provisions of section 140 were seen as being discussed in the case Hickman v
Ding v Sylvania Waterways Ltd (1999)3.
Section 232 of the Corporations Act 20014 states that a court has the power to be
making an order under the provisions of section 233 if any actual or proposed conduct or act
or omission of the company that has been made by way of any actual or proposed resolution
is either oppressive, prejudicial or discriminatory in an unfair way or can be seen as in
contradiction to the interests of any of the members of the company.
In the case Gambotto v WCP (1995)5 it was held by the court that a company’s
constitution can provide for the expropriation of shares if it can provide that the power has
been exercised for a proper purpose and the exercise of it is fair in every circumstance.
The tests provided in the Gambotto case can be applied for the restriction or removal
of the voting rights of the shareholders as has been judged in the case Shears v Phosphate
Co-Op Co of Aust Ltd6.
Validity of the First Amendment
In the given scenario it is seen that Hannah, a 5% shareholder of the shares of
AMAZE Ltd., used her position in the company to gather information and use it for the
benefit for the company’s main competitor Hedge Fun where she is a CEO. Hannah
influenced the other shareholders to tie the vote twice regarding the decision for the contract
with Sunshine Botanical Gardens and used the opportunity for Hedge Fun Ltd to get the
contract. The first amendment of the contract was laid down by Ada and Bob in relation to
3 Ding v Sylvania Waterways Ltd (1999) 46 NSWLR 424
4 Corporations Act 2001, s.232
5 Gambotto v WCP Ltd (1995) 182 CLR 432
6 Shears v Phosphate Co-Op Co of Aust Ltd (1989) 7 ACLC 812

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this conduct of the shareholders which stated that the rights of any shareholder to be voting
for the matters of the company having less than 10% of the shares would be revoked. Only
Ada and Bob were seen as voting for the amendment.
Following subsection 1 of s 136 of the CA it can be observed that at the time of the
AMAZE Ltd’s incorporation the constitution of the company was also created. Applying
section 136 of the Act in given scenario, it is seen that the first amendment was proposed to
the other shareholders, Kanak, Hannah, Elle and Otto by the directors of the company Ada
and Bob by way of special general meeting. Thus the amendment is according to the
subsection 2 of this section.
Applying the judgment of the case Hickman v Ding v Sylvania Waterways Ltd (1999)
it can be said unless agreed in writing the shareholders would not be bound by the
constitutional amendments under the provisions of section 140 of the Act. As in the case no
mention of any written agreement of the shareholders can be found for being bound by the
future amendments of the constitution therefore they are not required to be following the first
amendment of the AMAZE Ltd’s constitution.
By the application of section 232 of the Act in this scenario it can be seen that the first
amendment to revoke the voting rights for all shareholders having less than 10% share would
be oppressive towards them and would further be contradictory to the interests of the
minority shareholders like Otto, Kanak, Hannah and Elle.
By applying the judgment of the Shears case where the judgment of the Gambotto
case was used for the alteration of the constitution for removal or restriction of the voting
rights of the shareholders it can be seen that the restriction of the voting rights of all the
shareholders in AMAZE is not fair as Elle, Otto and Kanak had not done any action towards
the company that could cause severe detriment to the company. Applying the judgment of the