Steps for Registering and Incorporating a Company in Australia

This article discusses the steps required to be taken for registering and incorporating a company in Australia. It covers the legalities involved in incorporating and registering a company, including the selection of the type of company, the naming of the company, the selection of a constitution or replaceable rules, and the application process for registering a company. The article also provides a case study that illustrates the steps required to be taken by Richard and his sons, while they start a company form of business.

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Corporate Law
Answer to problem questions
25-May-18
(Student Details: )

Corporate Law
Table of Contents
Introduction................................................................................................................................3
I: Issue........................................................................................................................................3
R: Rule.......................................................................................................................................3
A: Application............................................................................................................................5
C: Conclusion.............................................................................................................................5
Introduction................................................................................................................................6
I: Issue........................................................................................................................................6
R: Rule.......................................................................................................................................6
CMS.......................................................................................................................................6
CM..........................................................................................................................................6
Lazarus Pty Ltd......................................................................................................................7
A: Application............................................................................................................................7
CMS.......................................................................................................................................7
CM..........................................................................................................................................8
Lazarus Pty Ltd......................................................................................................................8
C: Conclusion.............................................................................................................................8
Reference List............................................................................................................................9
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Corporate Law
Answer 1
Introduction
Business in Australia can be undertaken by opting for different types of business structures.
The leading business structures in the nation include trust, partnership, sole trader and
company form (Australian Government, 2017). In order to choose which business structure is
most appropriate, the features of each form and the needs of the choosing party have to be
analyzed. This discussion is focused on the steps required to be taken by Richard and his
sons, while they start a company form of business. This would involve the legalities involved
in incorporating and registering a company.
I: Issue
For Richard and sons, the main issue is the steps which they have to take for registering and
incorporating a company.
R: Rule
Corporations Act, 2001 (Cth), herein referred to as CA, is the applicable legislation on all the
companies in the nation. Section 112 of CA provides the two main types of companies in
Australia. These are public and proprietary company. Each of these categories also has
further classifications as well. These include public companies classification as limited by
shares, guarantees, no liability company and ones with unlimited share capital. The other set,
i.e. of public companies include limited by shares and the ones which are no liability
company. As against the public companies, there is a prohibition on proprietary companies
from offering shares to public and can only be issued to family or friends (AISD, 2016).
Section 148 of CA puts forth the provisions of naming of company. The name of a company
can be selected as per the Australian Company Number. The classification of company as per
section 112 clarifies on the suffix on company names. For instance, a limited company would
have the word limited at its end, the same type of proprietary company would cover the
words proprietary limited at its end, the no limited companies have these very words in the
end, and the unlimited proprietary companies have the wordings proprietary in the end
(Department of Industry, Innovation and Science, 2016).
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In order for making reservations on a specific name, section 152 of CA requires an
application to be made to the ASIC. Any company is awarded a name only when it is not
similar or identical to any other company, per se requirements of section 147 of CA. For
making an application for registering a company, the person pursing the company formation
has to make an application to ASIC. The details of content of this application are covered
under section 117. Some of these include complete share details, address of registered office,
and consent given by different people for holding different positions in the company.
The next step is selecting if the company would be ruled by a constitution or replaceable
rules. The provisions for this are covered under chapter 2B part 2B.4. The replaceable rules
are the rules which are set out for the purpose of company being managed. Where a company
does not opt for constitution, they can choose the replaceable rules. Section 141 of CA covers
the provisions for it in detail. Section 136 covers the provisions on company constitution. The
companies are free to adopt a constitution before or after the registration of company. Where
it is adopted after the process of registration, there is a need for getting a special resolution
passed for the constitution being adopted. Where this process takes before process of
registration, the members have to give in writing that they agree towards the constitution
terms (ASIC, 2018a).
Once a decision has been made on constitution or replaceable rules, there is a need to file an
application with the pertinent fees based on section 117 of CA. Once the ASIC is satisfied
that the requirements and elements as are needed are present in the made application, the
companies are given ACN by the ASIC. This is coupled with registration of the company and
the certificate covering details of company, its type, name and ACN based on section 118 of
CA. Section 119 of CA covers the date of company coming into existence, and this is the date
when the company is registered.
The certificate of registration covers the company name. Once a company is created, it
continues to have an existence in the eye of law, till such time where it is specifically
deregistered. Upon the incorporation of a company, it can start its business. Apart from this,
the company has to ensure that it abides by the provisions of laws applicable on it. The
registration of company is followed by putting the name of company on display at such
places where it undertakes its business. There is also a need to display the ABN or ACN on
company published documents. There is also a need to ensure that the company details are
kept updated at all times (ASIC, 2018b).
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Corporate Law
A: Application
The case study covers Richard and his two sons, David and Liam. They wish to expand their
business and want to choose a business structure having ease of raising capital and getting tax
benefits; and so have chosen to start a family run company. For creating a company, the
selection of type of company needs to be made. For their needs, a public company limited by
shares is most suitable. This is because this form would allow them to raise capital from
public. They also have to find a registered office, get consent forms, and give share details.
They have to select name of company and this requires checking the name on the ASIC
database. At present, these names are available, and can be selected by the three (ASIC,
2018c).
An important decision which has to be taken in this case is the management of company
through replaceable rules or constitution. Due to restriction of applicability of the former in
certain sections, the three should go for a constitution. This has to be done before company is
registered, by providing necessary details. There is finally a need to make an application to
ASIC for company being registered with necessary fees. Once the company is incorporated,
the three can start their business operations.
C: Conclusion
Hence, the analysis of case study depicted the need for Richard, David and Liam to go for
public company limited by shares, having a constitution. This has to be done based on steps
elucidated in previous section.
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Corporate Law
Answer 2
Introduction
A tort is civil wrong done, and such a civil wrong done which results in a person being
harmed, as a result of duty of care being breached, results in negligence (Trindade, Cane and
Lunney, 2007). This segment provides the liabilities owed by the three companies with
regards to negligence. These three are CMS, subsidiary company, CM, holding company, and
Lazarus Pty Ltd.
I: Issue
Can the three companies be held liable under negligence?
R: Rule
CMS
Where a person owes a duty of care to another individual, they are required to be careful that
this duty is properly fulfilled. In case the reverse happens and this duty of care is breached,
the injured or harmed party can bring a claim of negligence against the duty bearing party
(Kelly, Hammer and Hendy, 2014). There are certain elements which need to be shown as
being present for negligence to be established. These include duty of care, breach of it,
resulting harm or loss, remoteness of damages, proximity, causation and reasonable
foreseeability. Once all these elements can be proved to be present, the aggrieved party is
awarded damages for the loss which they had to bear (Latimer, 2012). A leading case in this
regard is Donoghue v Stevenson [1932] UKHL 100. This case held the manufacturer liable
for negligence towards the consumer, as D consumed liquor from bottle manufactured by S,
which had a dead snail, resulting in D getting sick.
CM
The law makes the holding companies liable under certain circumstances for the negligence
undertaken by its subsidiaries (French, Ryan and Mason, 2016). In such a case where the
court deems it necessary that the protection of rights of stakeholders of the company, there is
a need to ignore or keep aside the concept of separate legal entity of a company, the corporate
veil of the company is lifted, and the guilty party is held liable. So, where the company does
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Corporate Law
not do what is required as per the established laws, the members or owners of company can
be made liable for the debts which the company owes (Rudorfer, 2009).
Where the acts of a subsidiary company cover any tortious liability, the court can pierce the
corporate veil (Muscat, 2016). CSR Ltd v Young [1998] Aust Tort Reports 81-468 saw the
court making the holding company liable and deemed it to be in same position as its
subsidiary. The reason for this was the direct control over the activities of the subsidiary of
the holding. Further, this control was strong enough to state that the holding was concluding
the tasks of subsidiary.
The corporate veil can also be lifted where the subsidiary acts as holding company’s implied
agent. Smith, Stone & Knight Ltd v Birmingham Corp [1939] 4 All ER 116 saw the holding
company being entitled to compensations in context of business run by subsidiary. This was
due to the clarity on subsidiary working on behalf of holding.
Lazarus Pty Ltd
Where it can be established that the purpose of company being formed was sham or façade,
the court can pierce corporate veil and again hold the relevant person liable
(Vanderkerckhove, 2007). Creasey v Breachwood Motors Ltd [1993] BCLC 480 provides
that corporate veil can be pierced in interest of justice. This case had corporate veil being
lifted to cross check the incorporation of Breachwood Motors Ltd. The company was later on
made liable for wrongful dismissal by erstwhile Breachwood Welwyn Ltd of Creasey.
A: Application
CMS
In this case, a duty of care was owed by CMS towards all of the employees and also towards
the residents of such areas in which it conducted its operations. The water was not kept clean
and also got contaminated with the elements which cause cancer. When the people got
cancer, this was a failure on part of CMS in upholding their duty of care. Terry had been one
of the residents of Gunbarrel and got cancer, owing to breach of duty of care on part of CMS.
There was clear foreseeability due to mining activities having this possibility. Applying
Donoghue v Stevenson, the company would be required to compensate Terry for his illness.
None of the requisite elements of negligence are lacking in this matter.
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Corporate Law
CM
For this case, CM is holding and CMS is holding. For court to pierce corporate veil, there is a
need to show the strong control of holding over subsidiary and the business being run by
subsidiary for the holding. Only then would CM be liable for acts done by CMS. Here, the
annual lease charge was being paid by CMS to CM which was equivalent to lending rate of
bank plus 10%. The rates higher than banks being charged shows strong control of CM over
CMS and based on CSR Ltd v Young, the holding would be liable. The purpose of this lease
was just to sublease to CMS, which shows work being done through subsidiary. Per se Smith,
Stone & Knight Ltd v Birmingham Corp, this would be considered as work done by CM.
these factors would allow the courts to lift corporate veil and make CM liable for negligence
damage to be paid to Terry for acts of CMS.
Lazarus Pty Ltd
The purpose of Lazarus Pty Ltd being formed by CMS shareholders was evasion of possible
liabilities of CMS owing to negligence related liabilities, for the cancer caused to the
employees and residents of Gunbarrel. This was clearly a façade or sham. Based on Creasey
v Breachwood Motors Ltd, the corporate veil of Lazarus Pty would be lifted by the courts to
make CMS liable for their misdeeds, where this newly formed company would be required to
compensate the victims of negligence undertaken by CMS.
C: Conclusion
Thus, Terry is advised to bring claim of negligence against the three companies, and he
would be successful in his negligence case, whereby he would be compensated for his illness.
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Reference List
AICD. (2016) Organisation definitions. [Online] Available from:
http://www.companydirectors.com.au/director-resource-centre/organisation-type/
organisation-definitions [Accessed 25/05/18]
ASIC. (2018a) Constitution and replaceable rules. [Online] Available from:
http://asic.gov.au/for-business/starting-a-company/constitution-and-replaceable-rules/
[Accessed 25/05/18]
ASIC. (2018b) Starting a company - How to start a company. [Online] Available from:
http://asic.gov.au/for-business/starting-a-company/how-to-start-a-company/ [Accessed
25/05/18]
ASIC. (2018c) Search Results. [Online] Available from:
https://connectonline.asic.gov.au/RegistrySearch/faces/landing/NameAvail.jspx?_adf.ctrl-
state=5701hoqcq_4 [Accessed 25/05/18]
Australian Government. (2016) Business structure. [Online] Available from:
https://www.business.gov.au/info/plan-and-start/start-your-business/business-structure
[Accessed 25/05/18]
Corporations Act, 2001 (Cth)
Creasey v Breachwood Motors Ltd [1993] BCLC 480
CSR Ltd v Young [1998] Aust Tort Reports 81-468
Department of Industry, Innovation and Science. (2016) Register your company. [Online]
Available from: https://www.business.gov.au/info/plan-and-start/start-your-business/
business-and-company-registration/register-your-company [Accessed 25/05/18]
Donoghue v Stevenson [1932] UKHL 100
French, D., Ryan, C., and Mason, S. (2016) Mayson, French and Ryan on Company Law. 33rd
ed. Oxford: Oxford University Press.
Kelly, D., Hammer, R., and Hendy, J. (2014) Business Law. 2nd ed. Oxon: Routledge.
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Latimer, P. (2012) Australian Business Law 2012. 31st ed. Sydney, CSW: CCH Australia
Limited.
Muscat, A. (2016) The liability of the holding company for the debts of its insolvent
subsidiaries. Oxon: Routledge.
Rudorfer, M. (2009) Piercing the Corporate Veil. Norderstedt: GRIN Verlag.
Smith, Stone & Knight Ltd v Birmingham Corp [1939] 4 All ER 116
Trindade, F., Cane, P. and Lunney, M. (2007). The law of torts in Australia. 4th ed. South
Melbourne: Oxford University Press.
Vanderkerckhove, K. (2007) Piercing the Corporate Veil. Netherlands: Kluwer Law
International.
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